
Glass 




Book 


^7 L 





CORNELL STUDIES 

IN 

HISTORY AND POLITICAL SCIENCE 



ISSUED BY 



THE PRESIDENT WHITE SCHOOL v\ [j. 



CORNELL UNIVERSITY 



VOLUME IV 



SOCIAL INSURANCE 
AN ECONOMIC ANALYSIS 



BY 

ROBERT MORSE WOODBURY, Ph.D. 

Assistant Professor of Economics in the University of Kansas 

SOMETIME PRESIDENT WHITE FELLOW IN POLITICAL 
AND SOCIAL SCIENCE IN CORNELL UNIVERSITY 



NEW YORK 

HENRY HOLT & CO. 

1917 



*p$* 



Zr- 






The 1>t om Press 
N. H. 



TO 

MY FATHER AND MOTHER 



TABLE OF CONTENTS 



Chapter page 

I. The Development of Social Insurance I 

II. Voluntary versus Compulsory Insurance in the United 

States 21 

III. The Burden of Accident Cost 38 

IV. Incidence of the Burden of Accident Cost 55 

V. Amount and Weight of the Burden of Social Insurance in 

Germany 74 

VI. The Shifting Process in Industry 100 

VII. Effect of Insurance upon Capital and Enterprise 107 

VIII. Effect of Insurance upon Wages 113 

IX. Effect of Insurance upon Thrift 128 

X. Effect of Workmen's Compensation on the Prevention of 

Accidents 142 

XI. Conclusions 156 

List of Authorities Cited 160 

Index 165 



PREFATORY NOTE 



The present study was suggested by the frequent refer- 
ences in the literature of social insurance to the burden 
imposed by legislation for workmen's compensation and 
old age pensions. These references usually mention the 
complexity of the economic forces concerned and the intri- 
cacy of analysis. If the writer is strongly in favor of the 
policy of compulsory insurance the subject is often dis- 
missed with a few optimistic generalities; if opposed, it is 
dismissed with as little real analysis, but with a prediction 
of ominous possibilities to business or to the wages of work- 
men. In the present book, submitted in 1915 to the faculty 
of the Graduate School of Cornell University in partial ful- 
fillment of the requirements for the degree of Doctor of 
Philosophy, an attempt is made to study the question of 
the burden of insurance critically. German experience 
respecting the cost and weight of insurance contributions 
has been reviewed. The possible effect of compulsory insur- 
ance on thrift has been analyzed and the effect of accident 
insurance upon the accident rate illustrated by German 
statistics. The analysis completed, it becomes possible to 
weigh the burden of cost and social disadvantage with the 
positive advantages to be derived from the compulsory 
insurance of the working classes, and to reach a reasoned 
conclusion with respect to the wisdom of a policy of social 
insurance. No attempt has been made to discuss or to 
criticize the various measures and methods of insurance in 
special fields. 

The writer wishes to acknowledge with gratitude valuable 
suggestions and criticisms from Professor Alvin S. Johnson 
of Leland Stanford, Jr. University, Professor Walter F. 
Willcox, Professor Allyn A. Young, and Professor Charles 

ix 



X SOCIAL 3"5T2A>"CZ 

H. Hull erf Cornell University Adonxraded 
made to Professor Young foe editorial re 
assistance in proof leading. 

ROSZST MCR.SE 



SOCIAL INSURANCE 



CHAPTER I 

THE DEVELOPMENT OF SOCIAL INSURANCE 

The movement for social insurance is an attempt to 
solve certain new problems arising from new industrial 
conditions. Modern productive methods, gathering large 
bodies of workmen together in factories, and demanding 
large amounts of capital, have magnified the difference in 
position of the employer and the employee and have fur- 
thered the development of a working class. The special 
problems of that class have been brought into prominence. 
Among them the safeguarding of the economic position of 
workingmen by elimination of fluctuations of income is of 
great importance. The advantages of adequate compensa- 
tion for industrial accidents and of insurance of workingmen 
against sickness and old age are appreciated by an enlight- 
ened public opinion. The interruptions of earnings due to 
sickness and accident may be eliminated or reduced, the 
hardships and distress of a workman and his dependents 
lessened, the days of old age made secure and free from the 
stigma of pauperism. Legislation to secure these ends 
has been widely enacted. 

But, as with most measures of economic or social signifi- 
cance, questions of cost arise: benefits must be considered 
in relation to cost. Are the advantages of social insurance 
sufficient to warrant the expense ? Who should pay for it? 
What of the economic burden laid upon industry? Ques- 
tions of the shifting and incidence of the burden of cost, 
the effect of social insurance upon industry, enterprise, and 
wages must all be considered, and possible disadvantages 



2 SOCIAL INSURANCE 

weighed. Will insurance exert an unfavorable effect on 
thrift in the working classes? Does compensation for in- 
juries tend to increase the accident rate? These questions 
may not safely be disregarded. The present chapter will 
attempt to trace the development and describe the present 
extent of social insurance legislation. In the following 
ch?pters the argument for adequate protection, even 
though it involve compulsion, will be presented. Succeed- 
ing chapters will be devoted to an analysis of the economic 
and social effects of social insurance, a careful study and 
weighing of which is necessary before a satisfactory con- 
clusion on the desirability of social insurance legislation can 
be reached. 

. Social insurance, strictly speaking, is not insurance at all. 
Insurance involves the distribution of the burden of acci- 
dent or other loss among persons exposed to risk by means 
of premiums so measured as to equal the cost. Social in- 
surance is a term applied to government action with refer- 
ence to the problem of eliminating uncertainty from the 
income and life-position of workingmen. An accident may 
cripple a laborer for life and prevent him from earning a 
livelihood; sickness may cause a temporary or permanent 
loss of earnings; old age may find him unprepared with 
savings and unable to support himself. All of these con- 
tingencies may be met by insurance voluntarily assumed 
by persons subject to risk. Legislation designed to lessen 
uncertainties or fluctuations of income arising from these 
causes may be termed social insurance legislation. A leg- 
islative measure may require workmen to insure themselves 
against accident or may take the form of imposing upon the 
employer liability for damages arising from negligence, or, 
as in workmen's compensation and in accident insurance, 
the employer may be required to pay specified rates of 
compensation to injured workmen. Measures requiring or 
assisting workmen to insure against sickness, invalidity, 



THE DEVELOPMENT OF SOCIAL INSURANCE 3 

or old age are designed to reduce the fluctuations of income 
of workmen. It is usual in such legislation to lay a part 
of the cost on the employer. State old-age-pension schemes 
represent a bold assumption by the state of responsibility 
for the aged workman whose income is insufficient. All 
such legislation falls within the field of social insurance. 1 

(The test of the adequacy of social insurance legislation 
is the^ctegree of completeness with which the legislation ac- 
complishes its object in its special field — the elimination of 
insurable uncertainties from the income of workmen^ The 
development of social insurance shows a progressive ten- 
dency toward greater adequacy. The (limited) liability 
of employers for damages resulting from negligence has been 
superseded by workmen's compensation and accident in- 
surance laws applicable to practically all industrial acci- 
dents. Legislation encouraging and assisting voluntary 
insurance has given place to compulsory insurance legisla- 
tion. The chief obstacles in the way of more adequate pro- 
jection have been the difficulties of administration and en- 
forcement. But methods have gradually been perfected 
by which premiums can be regularly collected and the in- 
surance of workmen efficiently controlled. 

An important feature of the development of social in- 
surance legislation, though not directly connected with the 
trend to compulsion and to greater adequacy, is the evolu- 
tion of the division of the burden of cost. A given division 
of cost reflects as it were the prevailing concept of equity 
in apportionment; but where determined by legislative 
enactment, it may also be regarded as an indication of the 
political strength of the parties to the division. 

1 Unemployment insurance, maternity insurance, etc., fall within the 
field of social insurance, but they are not here specifically treated. Un- 
employment insurance has been only recently developed, and the special 
difficulties connected with compulsory unemployment insurance are so 
great and to such a large extent still awaiting solution that it has not 
seemed worth while to give it a separate treatment. 



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in Hmmdmmiabmdk dor Sfmmt ■!■■ ' 1 -fw hafle x, 3d 



THE DEVELOPMENT OF SOCIAL INSURANCE 5 

vision was extended by a law of June 7, 1871, to the rail- 
roads of the empire. The same law contained provisions 
applying to mines, quarries, and factories. The employer 
was made liable for the negligence or fault of a deputy or 
superintendent, and the earlier defence that he was not at 
fault in the choice of his representative was swept away. In 
these industries the burden of proof remained with the in- 
jured employee. 1 

The next step was the enactment of the accident insur- 
ance legislation of July 6, 1884. Employers in specified 
branches of industry were required to form mutual asso- 
ciations and pay compensation on a scale determined by the 
law for injuries received in the course of employment. In 
later laws the scope of this insurance was extended till 
practically all industries, including agriculture, were cov- 
ered. In these laws negligence of employer is abandoned 
as a basis of award; adequacy of protection is the guiding 
principle. But the new apportionment of cost followed 
substantially the logic of the previous division. If negli- 
gence was proved, it had seemed equitable that the em- 
ployer should pay: negligence implied liability. When the 
concept of negligence was illogically extended, the cost placed 
upon the employer increased. With the abandonment of 
the basis of negligence, the employer was still held respon- 
sible for most of the cost, and reasonably so from the stand- 
point not of negligence but of adequate compensation. 
The only change was the assignment of part of the cost of 
caring for accidents during the first thirteen weeks to the 
sickness insurance system; this meant that approximately 
8 per cent of the total cost of accidents was laid upon the 
employee. 2 

In the development of sickness and invalidity insurance 
and provision for old age, the trend from voluntary to 

1 Handwdrterbuch, V. 221. 

2 Lass and Zahn, Einrichtung und Wirkung der deutschen Arbeiter- 
versicherung, 185 (1900). 



6 SOCIAL INSURANCE 

compulsory insurance can be clearly traced. At a very early 
time some provision for accident and sickness and old age 
was voluntarily made through private and mutual organi- 
zations. Many of the guilds and journeymen's associa- 
tions provided for the care of sick members by regular 
payments to a monastic hospital. The Prussian law of 
1794 codified most of the provisions then existing in guilds 
and among workmen. According to this codification 
journeymen were permitted to choose one of their number 
to superintend a fund to provide for common needs, 
especially for the care of the sick or otherwise unfortunate. 
The fund was liable to be drawn upon to assist even newly 
arrived journeymen, who had not yet secured employment 
in the town. 1 Masters were required to provide for a sick 
journeyman only in case the assistance given by the jour- 
neymen's fund was insufficient. The master was not 
required to care for a sick apprentice unless it was specified 
in the contract. Guilds of masters were primarily for 
mutual assistance among themselves. Factory owners had 
in general the same rights and duties as guild members, and 
their employees had much the same position as journeymen. 
The cost of caring for sick and injured workmen was placed 
upon their own mutual organizations. 2 

In the mining industry associations of workmen were much 
more highly developed. The need of organization for 
mutual assistance was greater because of the greater fre- 
quency of accident and the greater risks of the employment. 
The principle of compulsion was recognized in the early 
laws relating to the Knappschaftskassen, or miners' asso- 
ciation funds. Compulsory contributions were required of 
the journeymen miners to meet the cost of sickness and acci- 
dent. The claims of injured workmen against the associa- 

1 Manes (Honigmann), Arbeiterversicherung (Deutschland) in Hand- 
worterbuch, 3d ed., I. 798-9. 

2 Honigmann, Arbeiterversicherung (Deutschland), in Handworter- 
buck, 1st ed., I. 519 et seq. 



THE DEVELOPMENT OF SOCIAL INSURANCE 7 

tions were given legal sanction in the Prussian codification. 
Part of the cost of the care of sick and injured miners was 
placed by law upon the mine owner, whose liability ex- 
tended to from four to eight weeks of illness. The journey- 
men's funds were required to care for cases of accident and 
sickness after the employers' liability had been exhausted. 
Employers regularly gave contributions or subsidies to the 
journeymen's funds. 1 

Seamen were entitled to benefits prescribed by special 
laws. A seaman who was injured or who fell sick during 
the voyage had to be cared for at the expense of the captain 
or owner till the home port was reached, and in case of 
death small payments ranging from one to four months' 
wages were to be paid to the widow or heirs. 2 

A servant in city and country was entitled to be cared 
for in sickness by his employer, if he became sick or dis- 
abled during or because of his work. In other cases, the 
employer was required to give only temporary care, and 
could deduct the costs of such care from wages. 3 Laborers 
in the country were, prior to 1807, in a condition of serfdom, 
and the landowner was required to care for them in case of 
need and to provide for orphan children. 

The protection thus afforded some classes of workmen 
was considerably weakened by changes in the direction of 
greater freedom for the laborer and for the employer. 
In the early part of the nineteenth century, freedom of 
movement was given to country laborers. The abolition 
of serfdom meant that landowners were no longer required 
to care for sick or injured farm laborers. The control of 
the guild over trade was taken away and industrial freedom 
realized. The right of journeymen and workers to form 
unions and associations was recognized. The guild asso- 
ciations were no longer responsible for the care during sick- 

1 Handworterbuch, 1st ed., I. 520. 

2 lb. 520-1. 

3 lb. 521. 









:re^i:-g res- 
Li : *j.? zer- 






■■■ r. 



THE DEVELOPMENT OF SOCIAL INSURANCE 9 

employers and employees were equally represented. Bene- 
fits were carefully regulated. Members with full privileges 
were entitled to medical care and sick pension, or a life- 
long pension in case of invalidity. If death resulted from 
accident, the widow was granted a pension together with 
subsidies for the education of children under fourteen 
years of age. Members with partial privileges received 
medical care and a sick pension in case of sickness, and an 
invalidity pension or a funeral benefit in case of accident. 
The payment of contributions for a certain number of 
years was a prerequisite to receiving invalidity or old-age 
pensions, and as a rule the attainment of the larger benefits 
of full membership was limited to the more permanent 
portion of the labor force. 1 

Besides the compulsory organizations in the mining in- 
dustry and the funds in which membership might be locally 
required, organizations modeled after the English friendly 
societies sprang up. Membership in these funds was 
voluntary. Several were organized as early as 1848, among 
them the Book Printers' Association, which gave benefits 
for sickness and invalidity. 2 Labor unions and associa- 
tions of the Social-Democrats adopted benefit systems. A 
law of 1869 (June 21) exempted workingmen who were 
enrolled with one of the mutual organizations fr m the neces- 
sity of joining a local sickness-insurance fund. In 1876, 
societies were distinguished as "registered" and "free"; 
for the former maximum and minimum limits for benefits 
were prescribed and their activities were restricted to offer- 
ing sickness and funeral insurance. The actuarial relation 
of benefits to contributions was supervised. Only members 
of registered funds were to be freed from the requirement 
to insure in a sickness fund. 3 The socialist agitation in 

1 Handwdrterbuch, 3d ed., I. 800 et seq. 
* lb. 801. Also 1st ed., I. 525-527. 
8 lb. 1st ed., I. 526. 



10 SOCIAL INSURANCE 

1878 brought on severe laws against the free mutual-aid 
societies and many were suppressed. 1 

Insurance under this system of private initiative, op- 
tional local compulsion, and direct compulsion in a few 
industries, was not by any means general. Comparatively 
few of the communes made use of their option. By the 
close of 1853 only 226 communes in Prussia had required 
local insurance, and only 58 of these levied a contribution 
on the employers. 2 In 1868 there existed in Prussia a 
total of 4700 funds making provision for sickness, with 
690,000 members. By 1874 there were nearly 800,000 
members enrolled. Besides these, the compulsory miners' 
associations insured 235,000 members and railroad funds 
had 66,000 more. Altogether there were nearly 1,100,000 
workers insured against sickness in these various organiza- 
tions. Provision for old age was much less general. The 
miners' funds included usually benefits for superannuation 
and infirmity, but gave them only to about one-half of the 
total membership. x\side from these, in 1876 166 funds 
with a membership of 36,000 provided specifically for old 
age and invalidity. Death benefits were given by 5144 
death-benefit associations with 1,600,000 members. Mixed 
funds numbered 1095 with 172,000 enrolled. 3 

W. H. Dawson quotes the reports of several cities to an 
inquiry made by the German Poor Law Association 4 on 
the extent of insurance prior to the enactment of the gen- 
eral compulsory 7 legislation. Several cities, Bielefeld, Col- 
mar, Erfurt, Halle, Kaiserslautern, and others, reported 
that "a large part" or "the major part" of the workers 

1 Handworterbuch, 3d ed., I. 802. 

2 lb. 1st ed., I. 522. 

3 lb. 1st ed., I. 528. Cf. also the Bericht der VIII. Kommis- 
sion vom 26. Juni 1879, in Sten. Ber. d. Reichstags. 4. Legist. Periode, 
II. Session, 1879. (Drucksachen d. Reichstags, No. 314), VI. 1170. 
The margin of error of these statistics is large, and the figures given are 
probably under the true numbers. 

4 Deutscher Verein fur Armenpflege und Wohltatigkeit. 



THE DEVELOPMENT OF SOCIAL INSURANCE II 

were insured against sickness. 1 Only three small towns 
mentioned any provision for old age. 2 In the mining indus- 
try alone was insurance general and compulsory. Even 
here the fluctuating character of the labor force made it 
difficult to enforce compulsion, and only those regularly 
employed were insured against old age. 3 

The situation prior to the compulsory legislation may be 
summed up as follows. Only a part of the working class 
was insured. 4 The principle of compulsion was recognized 
not only in the law regulating the mining associations but 
also in the local ordinance law. Workmen were required 
to insure; compulsory contributions were levied on the 
employers. Workmen in the mining industry under com- 
pulsory insurance were most adequately protected. Feasi- 
ble methods of enforcing compulsion had been discovered 
and voluntary insurance had proved inadequate. 

The development of social insurance in Germany has 
been an extension of the principle of compulsion. Insur- 
ance against sickness was made compulsory by a law 
passed June 15, 1883, which went into effect December I, 

1 Dawson, Social Insurance in Germany, 1883-iQii, 7-8. 

2 Zittau (23,000 population 1890), Schneeberg, and Hohenmolsen. 
Richard Freund, Armenpflege und Aroeiterversicherung, in Schriften des 
Vereins fur Armenpflege und Wohltdtigkeit, Heft 21. 

3 Keiner, Die Entwickelung der deutschen Invaliden- Versicherung, 5 
et seq. 

4 "Schon um die Mitte des Jahrhunderts erzielten die Bemuhungen 
des preussischen Handelsministers, die Gemeinden zur ortsstatuarischen 
Einfiihrung des Kassenzwangs zu bewegen, nur bescheidene Erfolge, 
und in noch geringerem Masse machte man spater von den Befiignissen 
Gebrauch, welche die Gewerbeordnung und das G. v. 7-/IV. 1878 
nach dieser Richtung eingeraumt hatten. Aber auch die freien Hilfs- 
kassen, die allerdings unmittelbar nach dem Erlass des Hilfskassen- 
gesetzes einen gewissen Aufschwung nahmen, bald jedoch, soweit 
Schopfungen der sozialdemokratischen Partei, auf Grund des Sozialis- 
ten-G. v. 21./X. 1878 grossenteils dem Schicksal der Auflosung verfielen, 
umfassten immerhin nur einen geringen Prozentsatz, vorzugsweise die 
materiell, sozial und geistig vorgeschrittene Elite der arbeitenden Bevol- 
kerung." Handworterbuch, 3d ed., I. 802. 












.-_. :: :.-t I _: : ^.i.:. ::_.-::-.-: -:.:t:: 7 --££7 :.i i 1::::-: 



THE DEVELOPMENT OF SOCIAL INSURANCE 



13 



date of adoption of accident insurance laws in the different 
countries. 

TABLE I 

DATES OF ENACTMENT OF FOREIGN COMPENSATION LAWS 1 



Country 



Date of 
Enact- 
ment of 
Original 
Law 



Country 



Date of 
Enact- 
ment of 
Original 
Law 



Germany 

Austria 

Norway 

Finland 

Great Britain 

Denmark 

Italy 

France 

Spain 

New Zealand 

South Australia 

Netherlands 

Greece (mining, quarry- 
ing, metallurgy, etc 
only) 

Sweden 

Western Australia 

Luxemburg 

British Columbia 

Russia 

Belgium 

Cape of Good Hope 



1887 
1894 

1895 
1897 
1898 
1898 
1898 
1900 
1900 
1900 
1901 



1901 
1901 
1902 
1902 
1902 
1903 
1903 
1905 



Queensland 

Venezuela (mining only) 

Mexico 

Hungary 

Transvaal 

Newfoundland 

Alberta 

Bulgaria 

Quebec 

Manitoba 

Nova Scotia 

Liechtenstein 

Servia 

New South Wales 

Tasmania 

Peru 

Montenegro 

Japan 

Switzerland 

Roumania 

Portugal 



1905 
1906 
1906 
1907 
1907 
1908 
1908 
1908 
1909 
1910 
1910 
1910 
1910 
1910 
1911 
1911 
1911 
1911 
1912 
1912 
1913 



1 United States Bureau of Labor Statistics, Bulletin, Whole Number 
126 (Workmen's Insurance Compensation Series No. 5), Workmen's 
Compensation Laws of the United States and Foreign Countries, 132. 



Compulsory sickness insurance laws covering either all 
of the working class or limited in application to certain 
occupations have been passed in Germany, 1884; Austria, 



14 SOCIAL INSURANCE 

1888; Hungary, 1891; Norway, 1909; Servia, 1910; Great 
Britain, 191 1; and Russia, 1912. France, Belgium, Den- 
mark, Sweden, and Switzerland have voluntary subsidized 
sickness insurance. 

Compulsory insurance against invalidity and old age went 
into effect in Germany in 1891. The Austrian law of 1906 
required insurance of salaried employees. France enacted 
in 1 9 10 a law compelling workmen to insure against old 
age. A compulsory law was passed in Sweden in 1913 
requiring contributions from practically the entire adult 
population. Old-age or invalidity insurance is required 
for workmen in a few industries in Hungary, Roumania, 
and Italy. Old-age pensions have been granted by the 
state to deserving aged poor in Denmark since 1891. New 
Zealand enacted an old-age-pension law in 1898, New 
South Wales in 1900, Victoria in 1901, the Commonwealth 
of Australia in 1908. A French law of 1906 gave pensions 
to the aged poor, and Great Britain, under the leadership of 
Lloyd -George, enacted in 1908 an old-age-pension law. 
No contribution of any kind is required from the pensioned 
class. Voluntary subsidized old-age-insurance systems 
are organized in Italy, Belgium, Servia, Spain, and New 
Zealand. 

The mere enumeration of the countries which have 
adopted measures of social insurance is impressive. It 
does not indicate, however, whether the legislation is com- 
plete or partial in its application. It does not show whether 
all or only a part of the working class is protected by the 
operation of these laws. The Imperial Insurance Office of 
Germany has compiled estimates for the countries of Europe 
of the numbers of the wage-workers and the numbers of 
those insured against the various contingencies. 1 The esti- 

1 Die Sozialversicherung in Europa nach dem gegenwdrtigen Stande der 
Gesetzgebung in den verschiedenen Staaten, in Sonderbeilage zum Reichs 
Arbeitsblatte, No. 12 (Dec. 1912. Erganzter Neudruck, Jan. 1913). 



THE DEVELOPMENT OF SOCIAL INSURANCE 1 5 

mates distinguish those making voluntary provision as well 
as those covered by compulsory legislation. The figures 
are given in Table II. 

Germany, with its compulsory insurance for accident, 
sickness, invalidity, and old age, shows to best advantage, 
with nearly the entire working population insured. Great 
Britain is a close second, the main difference being that the 
proportion of the population insured against accidents is 
smaller there than it is in Germany. The estimates 
show that a much larger and more general provision is 
made for industrial accidents than for sickness, and that 
provision for the latter is more general than for either inva- 
lidity or old age. Compulsory insurance means that a much 
greater proportion of the total population or of the working 
class is insured than under voluntary or even subsidized 
voluntary effort. It is to be remarked, however, that the 
figures are not quite comparable. Voluntary, or friendly, 
mutual aid societies, etc., are apt to include many above 
the working class level, who would not be required to 
insure under a compulsory system. The figures for com- 
pulsory insurance therefore may be applied to the working- 
class population without the reservations that have to be 
made in case of voluntary sickness provision. On the 
other hand the figures for voluntary provision are probably 
more difficult to obtain and omissions would be more likely 
to occur than in compulsory insurance. 

France, Great Britain, Denmark, and, outside of Europe, 
Australia and New Zealand, give old-age pensions or 
assistance to deserving aged persons without previous 
contribution of any kind. The number of old-age pensions 
cannot be compared to the entire working population to 
give intelligible results; the extent of such aid can best be 
measured by the proportion of the aged population in 
receipt of pensions. In England and Wales in 191 1, 57 
per cent of the population over 70 years of age received 



16 



SOCIAL INSURANCE 



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THE DEVELOPMENT OF SOCIAL INSURANCE 1J 

1 Finland. 98,200 "full-time workers." 2500 seamen. (1909) 

2 France. 250,000 insured compulsorily in State Institution for Sea- 
men. 4,000,000,000 marks wages insured, "voluntarily" (i.e., by em- 
ployers) roughly 4,000,000 workers. Cf. estimate, Workmen's Compen- 
sation Laws of the United States and Foreign Countries, in Bulletin of U. S. 
Bureau of Labor Statistics, No. 126, 133. 

3 Great Britain. "About 13,000,000 persons to be insured" (work- 
men's compensation with voluntary insurance). 

4 Netherlands. 89,619 establishments insured. 500,000 workers 
estimated: Germany with 6,200,000 establishments had 24,600,000 in- 
sured; Austria with 546,000 establishments had 3,710,000 insured; 
Luxemburg with 2503 industrial establishments had 36,701 insured. 

5 About 1 80,000 persons subject to insurance. Compulsory law passed 
recently. 

6 Sweden. Of 400,000 workers covered by the law (voluntary) about 
250,000 are insured. 

7 Switzerland. About 700,000 persons subject to insurance. Law 
passed recently, 191 1. 

8 France. 205,000 miners insured under compulsory law. 4,400,000 
members of mutual aid societies, exclusive of 500,000 honorary members. 

9 Germany. After the Second Book of the Social Insurance Code of 
191 1 goes into effect ( Jan. 1, 1914), about 20,000,000 insured. 

10 Great Britain. More accurate statistics wanting. About 14,- 
700,000. 

11 Roumania. About 140,657 persons to be insured under new law of 
1912. 

12 Russia. About 2,500,000 persons to be insured under the new law 
to go into effect in 1914. 

13 Switzerland. About 800,000 persons insurable. Compulsory in- 
surance can be required locally by cantons and communes. 

14 Belgium. 5600 mutual aid societies with 1,100,000 members 
providing against old age. 40,000 pensions current 1909. Old-age- 
pension institution. 68 associations with 145,000 members give in- 
validity benefits. 

15 France. 1 ,900,000 accounts of depositors in the State Old-Age 
Pension Institution, with 325,500 pensions current, 1910. 599,061 
persons, aged, and invalid, infirm and incurable aided, Dec. 31, 19 10, 
by state pensions. Besides 111,229 aided under law of April 5, 1910, 
aged 65-69 years (assistance-retraites). Annuaire statistique (France), 
XXXII. 59 (1912). 

16 Germany. Besides 2,000,000 to be insured under insurance law 
for salaried employees, 191 1. 

3 



1 8 SOCIAL INSURANCE 

pensions up to 5 shillings a week. In Ireland 68.4 per cent 
of the population over 70 were pensioned. 1 Australia 
pensioned 34 per cent of the population over 65, 2 New 
Zealand 33.6 per cent. 3 France assisted nearly 21 per cent 
of the aged over 70 with a small pension. 4 A very large 

1 Of the population over 70 in 191 1 in England and Wales (1,071,702), 
613,873 received pensions. This is exclusive of a large almshouse popu- 
lation. Population over 70 in Ireland in 191 1 was 295,027, of whom 
201,783, or 68.4 per cent, were pensioned. Cf. Parliamentary Papers, 
Cd. 6462, Third Report of the Commissioners of His Majesty's Customs 
and Excise, for the Year ended 31st March, 1912, 81 ; Census of England 
and Wales, ipu, VII. 1-2, figures from table; Census of Ireland, 191 1, 
General Report with Tables and Appendix, xxv. The grant of pensions 
in Ireland caused a singular change in the reported age distribution of the 
population. People had been understating their ages. More people were 
found to be over 70 in the first year of the passage of the act than had 
been estimated to be of that age in the island from the returns of the 
previous censuses. Cf. Cd. 6663, xxv (1912-13); also Mass. Report of 
the Commission on Old Age Pensions, Annuities, and Insurance, 98-99 
(1910). 

2 Australia. On June 30, 1910, there were 65,492 pensioners over 65; 
Apr. 3, 191 1, 190,583 population over 65 (except full-blooded aborigines). 
Cf. Parliamentary Papers, Cd. 6400, 199. Also, Official Year Book of 
the Commonwealth of Australia, VII. 119 (1914). 

3 The New Zealand Official Year-Book, 896, 892, and 126 (1912). 
In 191 1 16,020 persons were pensioned out of a population over 65 of 
47,700, or 33.6 per cent. 

4 Of an estimated population over 70 of 1,925,000 in 1911, 389,811, 
nearly 21 per cent, were assisted. Statistique generale de la France, 
Annuaire statistique, XXXII. 59, 7 (1912) ; XXVI. 7 (1906). The popu- 
lation over 70 for 191 1 is estimated on the basis of the increase of the 
population over 70 from 1901 to 1906. 



17 Great Britain. More accurate information wanting. Compulsory 
insurance against invalidity is part of sickness insurance. 908,000 
old-age pensioners, 19 10. 

18 Roumania. About 100,000 workmen to be insured under com- 
pulsory law of 1912. 

19 Sweden. Estimate of Swedish commission. Cf . Reichsarbeits- 
blatt, XI. 858 (1913)- 



THE DEVELOPMENT OF SOCIAL INSURANCE 19 

proportion, therefore, of the aged workers are cared for 
under these state-pension schemes. 12 

In the United States social insurance has gained little 
actual realization. More has been accomplished in accident 
compensation than along other lines. In thirty-one states 
workmen's compensation laws are in force providing for 
compensation by compulsory insurance of employees or 
by elective insurance with the alternative of abrogation 
of the main defenses of the employer under the common 
law rules. These laws are subject to review by the courts, 
which may declare them contrary to the constitution of 

1 Cf . the discussion and the rough estimates of Rubinow, Social In- 
surance, 378-379- 

2 Comparison of these data with the proportion of aged persons pen- 
sioned in Germany under compulsory insurance is possible only by 
estimate. The law in Germany is directed to relieving the distress of 
invalidity rather than to that of old age. No statistics of invalid pen- 
sioners showing the age distribution are published. Consequently 
there is no way of comparing pensioners over 70 with the population 
over 70, except by estimating the proportion of invalidity pensioners over 
70. In 1 89 1 132,926 old-age pensions were granted, covering 9.6 per 
cent of the population over 70. Practically no invalidity pensions were 
granted the first year. The number of old-age pensions at the beginning 
of the year rose in 1897 to 203,955, nearly double the number granted 
the first year, and declined to 93,369 in 1912. The decline is due to the 
fact that many of those over 70 now apply for and receive invalidity 
pensions, as these are now larger on the average than the old-age pen- 
sions. On Dec. 31, 191 1, there were 940,875 invalidity pensions cur- 
rent. Of 114,755 new invalidity pensions granted in 1910, 13,866 were 
given to persons 70 and over, or 12 per cent. In 1910, in Berlin, 6609 
out of 30,721 invalidity pensions current were received by persons 70 and 
over. Assuming that 20 per cent of all invalidity pensioners were over 
70, there were approximately 16 per cent of the population over 70 
of Germany pensioned. If 40 per cent of the invalidity pensioners were 
70 and above, there would be about 26 per cent of the aged persons pen- 
sioned. Apparently a much smaller proportion of the aged receive a 
pension in Germany than in Great Britain or in Australia or New Zea- 
land. Cf. Dawson, Social Insurance, 158-9; Amtliche Nachrichten des 
Reichs-Versicherungsamts, XXVIII. No. 2, 1, 281 (Feb. 1912); Statis- 
tisches Jahrbuch der Stadt Berlin, XXXII. 532. 



20 SOCIAL INSURANCE 

the state or of the national government. The constitutions 
of the states have been amended in some cases so as partly 
to obviate these difficulties. But a decision of a state court 
declaring a state law void on grounds of incompatibility 
with the national constitution is not subject to review by 
the federal courts. 

Practically no attempt has been made to secure social in- 
surance against sickness or invalidity. 1 Beginnings have 
been made in insurance against old age in the case of teachers 
and of certain government employees. 2 Pensions of the na- 
tional government take care of aged veterans of the Civil 
War, but make no specific provision for the aged working- 
man. 3 

The remarkable spread of the idea of social insurance 
throughout all the principal industrial countries of Europe 
and the beginnings of agitation in the United States 
point to the eventual adoption of the idea in some form. 
If the results of the system are good, if it is a step forward 
in social justice, if its advantages are greater than its disad- 
vantages, its introduction into the United States is only a 
question of time. 

1 Cf. Rubinow, Social Insurance, 281-298, for a discussion of this 
question. 

s lb. 391-412. Cf. Squier, Old Age Dependency in the United States, 

53-2 3 5 

1 Estimating that 60 per cent of the recipients of pensions of the 
United States government are 65 and over, there were 500,000 pen- 
sioners in a population of 3,949,000 in 1910, or 13 per cent of the popu- 
lation over 65 were pensioned. That this estimate is fairly reasonable 
is shown by the fact that 15.4 per cent of the population over 65 in 
Massachusetts are pensioners. See data of the Mass. Report of the 
Commission on Old Ag? Pen::: :: zz 1910;. Rubinow thinks that 
these are not the part of the aged population most in need of pensions. 
Op. tit. 408. Cf. Report of the Commissioner of Pensions, 1910, in Re- 
port of the Department of the Interior, 19 10. Administrative Reports, 
I. 146 et seq. 



CHAPTER II 

VOLUNTARY VERSUS COMPULSORY INSURANCE IN THE 
UNITED STATES 

The review of the historical development of social insur- 
ance legislation in Germany and its spread in other lands 
has shown the strength of the movement. Its fundamental 
causes lay in changes in industry and the development of 
a working class. A transformation of industry similar to 
that in England and Germany has been taking place in this 
country. The question is therefore presented, Is a devel- 
opment of insurance legislation in the United States on the 
model of English and German laws desirable? Is it advisa- 
ble to substitute a system of compulsory social insurance 
for individual and voluntary provision against sickness, acci- 
dent, and superannuation? 

The problem may be attacked in two different ways. 
We may accept European experience as conclusive for 
European conditions and inquire if conditions in the United 
States are sufficiently different to warrant a different pro- 
cedure. Or we may approach directly the special problems 
of the United States and arrive at our own conclusions 
independently and without especial reference to conditions 
abroad. 

The first method suggests at once the difference between 
European and American conditions. America is a new 
country with a wealth of undeveloped resources. We are 
still predominantly agricultural. Until recently there has 
been a surplus of free land available. England, Belgium, 
parts of France and Germany are highly industrial. It is 
only in our eastern manufacturing states and in our mining 
states that industrial conditions similar to those of Europe 
are found and that a permanent working class has begun to 



22 SOCIAL INSURANCE 

be formed. This contrast between American and European 
conditions may help to explain why American social insur- 
ance legislation has been late in starting. The existence of 
the frontier and the availability" of free land have fostered a 
vigorous individualistic spirit. Accident-compensation leg- 
islation has been retarded by the difficulty of constitution- 
ality. Legislation on old-age pensions has hardly been so 
urgent here as abroad. The present aged population, a 
much smaller proportion of the total than in most European 
countries. 1 is comparatively well off. especially in the agri- 
cultural states — a condition to which the ease of acquiring 
land may have contributed. In Massachusetts only 31.7 
per 1000 of the population over 65 were in receipt of relief 
(1909)' 2 as compared with 172.0 per 1000 in England. The 
treatment of the negro problem in the Southern states offers 
certain peculiar difficulties. Finally, the whole level of 
wages and of standards of living is considerably higher in 
America than in European countries. 

Other striking differences could be pointed out and dis- 
cussed. But a satisfactory solution of the problem may 
be reached only by a direct study of our own problems. In 
the mining and manufacturing states we have a large and 
increasing body of workers the majority of whom can never 
expect to achieve economic independence. Rubinow esti- 
mates, on the basis of computations made by I. A. Hour- 
wich, that out of 29.000.000 persons "gainfully occupied" in 
1900 there were 15.000.000 wage-earners, of whom nearly 
two thirds were workers employed in industry*. 3 Conditions 
here are beginning to approximate European conditions. 
These workmen and their families need to be protected 
against sudden fluctuations of income by reason of acci- 

1 In 1900 6.4 per cent of the population of the United States were 
over 60; in England and Wales. 7.4 per cent: in Sweden, 11.5 per cent; 
in France, 12.5 per cent. 

2 Massachusetts, Report of the Commission on Old Age Pensions, Annu- 
ities and Insurance, 44 (Jan. 1910). 

1 Rubinow, Social Insurance, 29. 



VOLUNTARY AND COMPULSORY INSURANCE 23 

dent, sickness, and old age. Can such protection be se- 
cured under American conditions by voluntary and indi- 
vidual provision? 

The end to be achieved is commendable. If protection is 
left to individual initiative, whether or not a workman will 
insure depends upon his appreciation of the need and upon 
his financial ability to carry out his good intentions. The 
average worker probably does not concern himself seriously 
with the uncertain contingencies of the future ; present nec- 
essities are too immediate and too pressing to permit ex- 
penditure on future objects. The worker is not an "eco- 
nomic man" who settles his expenditures by reason. Pres- 
ent enjoyments loom larger in the mind of the wage-earner 
than possible future suffering. 

Even if the worker has good intentions, financial circum- 
stances will often prevent them from being carried out. 
The surplus of receipts over expenses varies greatly at 
different periods of life of the average workman. During a 
period of surplus, some part of it may be used for insur- 
ance against loss of income ; but when the pinch comes, the 
insurance is likely soon to be given up. The proportion of 
lapses among industrial policy holders 1 is much greater than 

1 "In 1 90 1 the three large industrial insurance companies which do 
over 95 per cent of the whole industrial insurance business in this coun- 
try had 12,522,000 policies in force. By the end of 191 1 the number 
increased to 22,760,000, an increase of some 10,338,000 policies. But 
during the same ten years 38,593,000 policies were written. Even 
assuming a uniform mortality of 25 per 1000, which is, of course, very 
much too high, and an average of 16,000,000 policies in force during 
the ten-year period, or 4,000,000 deaths, it will leave over 24,000,000 
policies unaccounted for — most of them discontinued through irregu- 
larity of payment of the weekly premiums. Thus, in 63 per cent of all 
cases the agent system proves ineffective, which is a worse showing than 
the voluntary system makes in some European countries." Rubinow, 
Social Insurance, 421. 

The 24,000,000 lapses should be compared to the sum of the new 
policies, 38,593,000, and those in force at the beginning of the period, 
12,522,000, to get a percentage of lapses. This gives approximately 
48 per cent of lapses. 



24 SOCIAL INSURANCE 

in ordinary life insurance, on account of the very narrow 
margin of surplus and on account of the pressure of present 
wants upon the workingman. 

That the average workman is little capable of continued 
thrift without supervision is shown by the methods adopted 
by industrial life insurance companies in collecting pre- 
miums. Agents are sent to call each week to collect drib- 
lets of surplus earnings. An obligation assumed will not 
be met unless the workman is constantly reminded of it 
and unless it is brought to his attention as a payment that 
must be met. By the method of collection he is brought 
to realize that the insurance must be paid before other 
expenses are reckoned. His resolution must be kept up 
to the point of action by weekly visits. 1 The expense of 
this method of collection can be justified from the point of 
view of the insurance company on the ground that it is 
necessary. That it is necessary shows at once the diffi- 
culty of voluntary insurance among workmen. By the 
irony of fate, the cost of administrative expenses including 
collection amounts to approximately 40 per cent for indus- 
trial 2 as against 20 per cent, more or less, for insurance of 
the middle classes. Insurance of this kind looks like a 
costly luxury for the wage- worker. 

Probably almost any workman can be persuaded of the 
desirability of insurance against accident, sickness, or old 
age, as an abstract proposition, by a skilful and persuasive 
agent. The dangers and the risks of not insuring can be 
portrayed without stretching truth and be made a most 
convincing argument for insurance. The success of volun- 
tary provision depends then upon the degree of resolution 
with which the average workingman can be induced to 
persevere in his efforts. In securing this perseverance, 

1 "The small saving power of this class is shown in the failure of every 
attempt at having the payment periods as far apart as a month." Ham- 
ilton, Savings Banks and Savings Institutions, 94, note. 

2 Rubinow, Social Insurance, 425. 



VOLUNTARY AND COMPULSORY INSURANCE 25 

the methods of collection and the form of organization 
are the essential factors of success. 

Workmen may insure individually in industrial or acci- 
dent insurance; they may join fraternal organizations; or 
they may make mutual provision through trade unions or 
mutual societies. In each case the degree of tacit compul- 
sion is the degree of success. The success of industrial in- 
surance is due to the system of persistent collection, which 
compels the workman to provide first for his insurance out 
of his weekly earnings. Where lapses occur, it is because 
the compulsion is not strong enough; the appreciation of 
the need has weakened under the realization of the cost. 
In the trade union and in mutual labor organizations, the 
men are held together by a common purpose of maintain- 
ing wages and making collective contracts. Contributions 
made to the general treasury and used largely for accident 
and sick benefits are an additional bond of strength, but 
the success of the benefit features is due to their secondary 
character. A very real compulsion is exercised upon the 
membership for dues, including the contributions for insur- 
ance. Usually these dues are collected at short intervals. 

Voluntary individualistic effort will undoubtedly meet 
with partial success in insuring and providing for a part of 
the working class. Some will be insured against all contin- 
gencies, others against some particular ones which appeal 
most strongly to them. The remainder, a smaller or larger 
portion, depending on wages and on the general level of 
intelligence, will remain unprovided for. 

How much has voluntary insurance accomplished in the 
United States? What proportion of the working popula- 
tion is insured against accident, sickness, or old age? 

Industrial insurance, that is insurance providing for 
funeral expenses and a little besides, is widespread. Ru- 
binow gives figures for the extent of industrial insurance 
in the United States for 191 1. In 32 companies, 24,708,499 



~ ::::t "::^ i :::i. i~ :_r~. :: ::~ 5 _.: l.~ : e :: 
t&AZ&FVbrS&L Neariy 27 per cent of the population of 

■±e "."r... :r: 5:i:e5 — r.r= i^rr.i^g ini_L5:r:i: :~.5_ri- :t 7;.t 
i'Triri i~ :_.-: :: ::_t piling Iz : ; :: — =_« 5:: ..-. :*:: 
$112; in 1901, $133; and in 1911, $ 138. 1 The success of 

it. t r : : : t 1 f . : : . : ; 5 . : :. . r. 5 '_ : 1 r. : ~ ::. :ir :ir: : : ~ ~ t :.z 1 - 5 : r. i . 



e_= = ;ir: :: ::: r:i.::i:: :: i 
living z _: : :i:\::.:: :- ::"E.:t:ri i =u:-.::is= :::~ 

i : 5 : : : : ::.::.":.;' 2. *."rr^.* .irrt :::p:n:' :: :~t lit.; 

.'t It "Tr _ " I ZZZZ.5 II T"t ZTtZZZ.'- 'T* '..-..'-. 

be :i..: ;:;tiv:.^ :: ^rurizr izz'i -----~r~z ±.t : _ 

A very -^r^T Z-Z-: ::' . ip=e= -i^-t rl=..-.e ir_ ~:.:c ;:' "r 



VOLUNTARY AND COMPULSORY INSURANCE 27 

sums, practically funeral benefits. The average amount 
paid (7200 cases) was approximately $150. Local unions 
with 135,000 members gave small death benefits. Thirty- 
four railroad relief funds insured another 300,000; bene- 
fits in one half of these were fairly substantial; in the 
other half they ranged from $50 to $400. Four hundred 
and nineteen establishment funds had a membership of 
over 300,000 workers. In these different organizations 
there are over two million workingmen insured. 

Fraternal societies had in 191 1 ten million life policies 
outstanding. 1 Rubinow estimates that not over one half 
belonged to the working class or to the class of salaried 
employees. 2 

Altogether, a very large proportion of the working popu- 
lation have made some provision for meeting funeral ex- 
penses and providing a sum to meet the immediate need 
of the family after the death of the wage earner. The 
amounts received are in most cases small. 

Insurance against accident, sickness, and old age is not 
so well developed. Rubinow gives estimates of the extent 
of provision for sickness among workmen in the United 
States. Many of the national and local unions have bene- 
fit features, and a small proportion give benefits for tem- 
porary disability. In the benefit funds, establishment 
funds, and railroad funds others are insured against sick- 
ness; in these and in unions a total of approximately 
1,130,000 workmen are insured. 3 A total of approximately 
$4,480,000 was paid out in benefits in 1907. In the mutual 
sick-benefit associations, including the fraternal organiza- 
tions which made provision for sickness, 825,770 certifi- 
cates were in force at the close of 19 10, and $2,375,967 was 
paid out for claims. 4 Part of the membership of these 

1 Rubinow, Social Insurance, 424. 

2 lb. 426 and 293. 

3 lb. 292. 

4 lb. 294. 



::--: 



TOST" . "-1 

7 urmir<v sx:is ziiii: 



rKTLl-: .: 



-_; :;.:.: 



VOLUNTARY AND COMPULSORY INSURANCE 



29 



TABLE I 

SICKNESS INSURANCE FOR WAGE-WORKERS IN THE UNITED STATES, I907 1 



Form of Organization 


Number 

of 
Funds 


Number of 

Workmen Covered 

(Approximately) 


Amount Spent 

on Temporary 

Disability 


National unions 


19 
346 

35 

374 

3i 

805 


375,ooo 
100,000 
55,ooo 
300,000 
300,000 


$ 830,000 

200,000 

250,000 

1,200,000 

2,000,000 


Local unions 


Industrial benefit funds. . . . 

Establishment funds 

Railroad funds 






Approximate totals 


1,130,000 


$4,480,000 



1 Rubinow, Social Insurance, 292. 

TABLE II 

SICKNESS INSURANCE IN MUTUAL ASSOCIATIONS 2 



Items 


1901 


1905 


1910 


Number of mutual sick-benefit 
associations 


58 
207,044 

153,907 

$2,091,273 

1,996,204 

927,123 


100 
478,990 

517,240 

$4,328,577 

3,996,626 

2,077,857 


119 
651,776 

825,770 

$5,873,638 

5,58o,8i6 

2,375,967 


Number of certificates written . 

Number of certificates in force 

at end of year 


Total income 

Total payments 


Total payments for claims .... 



2 lb. 294. Taken from the Insurance Year Book. 

made. Some of the fraternal associations give old-age 
annuities. Probably but a small proportion of these are 
paid to workmen, and the actuarial basis has generally been 
quite inadequate, — so much so that in many states frater- 
nal organizations are prohibited from giving old-age insur- 
ance. Insurance against old age has never been especially 
popular in ordinary insurance companies, and has been 
quite neglected until the last few years by the industrial 



:: SOCIAL INSURANCE 



s. Voluntary savings-bank insurance 
tion in Massachusetts, where old-age 
it cost to workmen, has met thus far 

roads ire Domparathrely well protected 
tion. Railroads controlling approxi- 
4 the total mileage ::' the awiiiiiy have 

fyste—E : These pen?:: us are river: 
of long service. Several of the large 

estat fahments have organized pension 
ring- "e er-Tire ::s: t:-.e~se.ve~ sirr.e 
:r_5 :r:~ :~e err.r.iyees ~""i expect to 

Altogether, these provisions, includ- 
Joyers, protect but a small part of the 
vision for superannuation is much less 
he - orkinginen of the United States 



it of insurance in countries which 
:r ii up:r. the vrcrkrr.ar. sr.:~ that 
he w^ r»'ng fiasy is insured tha w in 
ompulsory system. Estimates for 
nrance under voluntary and com- 
ent European countries have been 
lapter. Prior to the establishment 
in Germany there was a consider- 
«, 411-412. Cf. Massachusetts, Ammmal 

Parti -x: 390-393 (1913)- 
demcy, Chap. IV. 109-138. Also Report* 
o). The mileage of the railroads men- 



mdsim&e United States for 

qoiries to employers of the 
gular system of retirement 
1 special cases. Rnbioow, 
■dbKft Chap. III. i^f^rt 



VOLUNTARY AND COMPULSORY INSURANCE 3 1 

able amount of insurance among workers against sickness, 
an employers' liability law which was fairly liberal for the 
employees of the railroads, and some slight provision against 
old age and infirmity. But only a portion of the working 
class was covered. In those occupations where the largest 
proportions were insured, insurance was compulsory. A 
large number still neglected to make any provision. The 
Government urged in 1882, in advocating the compulsory 
measure, "Experience has abundantly shown that the 
universal adoption of sickness insurance, which must be 
characterized as one of the most important measures for 
the improvement of the condition of the working classes, 
cannot be effected on the lines of the [voluntary] legislation 
of 1876." 1 

The issue between voluntary and compulsory insurance 
is, then, the question of the desirability of insuring all, 
including the more improvident portion, of the working 
class. Those who would take insurance voluntarily and 
make the payments that would be prescribed by compulsory 
insurance are practically unaffected. Those who would 
make provision on their own initiative but who lack the 
perseverance to continue to insure are prevented under a 
compulsory scheme from letting their policies lapse. Those 
who would make no provision at all if left to themselves are 
required to contribute. Is an adequate and complete in- 
surance of members of the working classes against these 
various contingencies worth while from a social point of 
view? 

It may be urged that it would be better for society if the 
thriftless, those who do not insure themselves voluntarily, 
were eliminated or made to suffer the penalty of lack of 
prevision. This objection deserves a careful consideration, 
for if thriftlessness is an undesirable quality and if it can be 
eliminated or lessened by the refusal to extend compulsory 
insurance to all classes of workmen, should we not prefer 

1 Dawson, Social Insurance, 8. 



-: SOCIAL ES'SOLAXCE 

the system of inadequate voluntary provision with its more 
rigorous weeding out of the unfit or undesirable members 
:■: s: riery • 

But is thrift an element of character that is inherited? 
In accident cases, where the injured man is fatally hurt, 
the burden of loss falls upon the widow or the orphan chil- 
dren. If failure to take out insurance is an evidence of 
thriftlessness on the part of the husband and father, can 
the conclusion be fairly drawn that the survivors lack 
that qualify ? without proof that thrift is an inherited 
character, the argument fails. 

But there is considerable evidence to show that thri:: is 
a social product; it can be inculcated by education and is 
affected by environment. The sons of the thrifty- immi- 
grant soon adopt the ways of the new country and the new 
standard of living may not allow room for the exercise of 
the paternal thrift. Standards of living may change and 
the margin between income and living expenses may be 
reduced; the amount of effective saving or thrift is neces- 
sarily dependent upon the standard of expenditure. In 
determining this standard social influences play a decisive 
part. 1 The exercise of thrift depends also upon the oppor- 
tunities offered for the investment of savings. In a grow- 
ing agricultural community, the demand for additional 
capital to improve land and equipment offers a direct and 
strong stimulus to saving. 5 When the need for capital is 
met according to prevailing standards the incentives to 
save are correspondingly reduced. 

The influence of education on thrift is illustrated in the 
numerous experiments with systems of school savings. 
In France in 1892 there were 23.375 schools which re- 
ceived the savings of their pupils, and 478,173 children had 
deposits aggregating 12.683.312 francs. 3 The success of 

■ Johnson, Influences affecting the Dadopmad of Thrift, in Political 

Sr.:-.:c ;:,;-;-;.. XXII. 257-2^ :;:- 
1 lb. 227 et seq. 

1 Cf. Hiziihc-. Sz::*:;: 3z-.'-.: z-.z Sz:-.~±: Z*. :::'::.;: :-•;;. 7: -§7. tsz . 71. 



VOLUNTARY AND COMPULSORY INSURANCE 33 

the Belgian subsidized old-age-pension scheme is due mainly 
to the agitation in the schools. The increase in the number 
of depositors following the grant of subsidies was largely an 
increase in the deposit accounts of children after a cam- 
paign of education. 1 

To argue that failure to provide for accident insurance 
signifies improvidence or lack of thrift or other undesirable 
qualities is to ignore the possible special circumstances of the 
individual case. A workman who places educational op- 
portunities for his children ahead of insurance or provision 
for old age ought not to be judged so rigorously. From 
the standpoint of a workingman laying out his limited 
weekly wage in the best way, the demand for accident or 
other insurance must seem of comparatively small weight. 
Accidents do not single out exclusively the undesirable, and 
claims for survival would probably be more justly decided 
on other grounds than the presence or absence of insur- 
ance. 

Lack of forethought for old age may affect surviving 
children if they have to support their parents in old age. 
But if there are no surviving children failure to provide 
savings affects directly merely the improvident themselves. 
The question to be considered here is whether the existence 
of severe hardships attendant upon destitution in old age 
is a necessary spur to thrift among the younger classes of 
the population. The duty of the State to care for its pauper 
population is recognized in these times; the aged poor will 
be cared for in almshouses, if not by insurance or pensions 
or by their own savings. The question is therefore not 
one of survival, but whether insurance or pensions will 

^-Workmen's Insurance and Compensation Systems in Europe, in Twenty- 
fourth Annual Report of the Commissioner of Labor, I. 521, 518, Belgium 
(1909). The ratio of new accounts opened by depositors under twenty 
to the total new accounts in the General Savings and Retirement 
Fund was in 1900, 49 per cent; 1901, 50; 1902, 45; 1903, 32; 1904, 45; 
1905, 45. The low percentage in 1903 is due to the transfer of soldiers' 
pensions to the fund by virtue of the law of March 21, 1902. 
4 



34 SOCIAL INSURANCE 

diminish thrift among that part of the population not yet 
arrived at advanced age. The treatment of this subject 
is reserved till a later chapter. 1 

The question of the effect of lack of forethought for acci- 
dent and sickness insurance is not between survival and 
elimination. In few cases does it mean so much as the 
latter. It involves, rather, whether orphan children will 
be given the barest minimum of subsistence, pinched by 
need, forced to forego educational opportunities, and put 
to work at the earliest possible age; whether the widow 
will be forced to work and neglect her family, or have to 
apply for charity. It is the question whether these chil- 
dren will be allowed to make the best use of their oppor- 
tunities to become good citizens or whether all conditions 
will be made difficult and the chance of their becoming 
worthy members of society be materially reduced. A higher 
death rate may eliminate some; but the survivors will 
nevertheless probably be of poorer quality- and more poorly 
equipped than otherwise. This is the important aspect 
of the problem from the social point of view. 

It does not by any means follow, as the argument under 
examination has assumed, that under a regime of compul- 
sory- insurance there will be a survival of unthrifty- elements 
in society-. Compulsory insurance has an educational value 
in developing thrift. It applies the spur of compulsion, 
with the result that substantial savings are actually accu- 
mulated by the working classes and applied to the needs of 
those affected by accident, infirmity, and old age. Thrift 
will be practised more rather than less under a system of 
compulsory insurance. Those members of the society- whose 
impulse to save is weakest are assisted by the group; the 
society as a whole becomes more fit to survive. A society 
whose members are all provided against disastrous losses 
from insurable contingencies has a clear advantage over 

i Chapter IX. 



VOLUNTARY AND COMPULSORY INSURANCE 35 

a society leaving such provision to individual action. Coop- 
eration is an element in survival of no small importance. 

Compulsory insurance, then, presents from a social point 
of view decided advantages over a policy of voluntary insur- 
ance. There remain to be considered the complex prob- 
lems of cost. The chief opposition to social insurance 
centers almost wholly on the question of division of cost 
between employer and employee. There would be little or 
no opposition on the part of employers to compulsory in- 
surance of workmen if the workmen bore the entire cost, and 
vice versa. 

Opposition to compulsion per se is usually merely a form 
of argument to cloak the real motive for opposition. By 
itself the compulsory character of social legislation can 
not be considered a valid objection. Attendance upon the 
public schools is compulsory in all advanced nations, be- 
cause it is held to be socially desirable. In individual cases 
it may seem a temporary loss. A measure which is rec- 
ognized as socially advantageous will not be condemned 
merely because it involves compulsion. Opposition to 
compulsion acquires significance only when considered with 
reference to a particular method of collecting or apportion- 
ing premiums. The opposition on the part of workmen in 
France to the compulsory old-age law was directed against 
the enforced deductions from their wages prescribed by it. 

The crux of the problem therefore lies in the apportion- 
ment of cost between employer and employee. Assess- 
ment of part of the cost upon employers will mean that a 
complicated shifting process will commence and economic 
changes of more or less importance may follow. Assess- 
ment of the entire cost upon employees would probably be 
politically impossible. Against advantages which would 
result from a measure of compulsory insurance must be 
opposed such social and economic disadvantages as might 
result from the weight of the burden. The question is a 



36 SOCIAL INSURANCE 

complicated one in which economic, political, and ethical 
considerations, in great variety, must figure. 

The historical development of the division of the burden 
throws a good deal of light on the matter. The employer 
was originally held liable for negligence resulting in acci- 
dent and later for neglect to provide proper safeguards for 
accidents, though for a long time he was not responsible 
for accidents to employees caused by their own fault or the 
fault of fellow-employees. Appreciation of the fact that 
frequency of accidents was dependent upon the character 
of the industry led to the notion that it was socially justi- 
fiable to lay the entire burden on the employer. This was 
strengthened by the realization of the fact that existing 
remedies were inadequate to meet the situation. 

Similarly with insurance for sickness and old age: Em- 
ployers of domestic servants were required to provide in case 
of sickness for the care of their help and this was extended 
to other occupations. In the German sickness insurance 
law the liability of the employer was assessed at one third 
of the total cost. Employers had contributed towards the 
funds of miners' organizations for provision for aged and 
infirm as well as injured persons, at first with a contribu- 
tion determined by themselves, later with a legal minimum 
limit. In the German invalidity law employer and employee 
contribute equally. 

Political conditions play a large part in such legislative 
apportionment. The respective power of business and of 
labor interests, the fear on the part of legislatures of the 
consequences of opposing labor measures, the fear of alien- 
ating the sympathy of the working masses armed with 
votes, are decisive factors in distributing costs. In an effort 
to diminish the power of socialistic agitation, as in Ger- 
many, business interests may be induced to cooperate and 
to agree more or less willingly to accept a share of the burden 
of insurance. A compulsory accident insurance law for all 
workingmen. requiring contributions exclusively from labor, 



VOLUNTARY AND COMPULSORY INSURANCE 37 

would be economically advantageous but politically impossi- 
ble and socially unjust. A compulsory old-age insurance 
law requiring the entire expense to be borne by labor has 
proved to be politically possible in Sweden, where contribu- 
tions practically in the form of a poll tax are levied on all 
persons, male and female (except certain specified classes), 
between the ages of 16 and 66. 1 Compulsory deductions 
from salaries are made in case of the teachers' pension law 
of Massachusetts. But the old-age insurance law of 
France met with vigorous resistance to its execution on the 
part of mutualists because of an attempt to deduct one 
half of the cost from wages. 2 

Economic questions play an important part in the prob- 
lem of justice and expediency. Does a burden placed upon 
the shoulders of the employer mean that it really rests with 
him, or does he shift it to the public or back to the laborer 
disguised as lower wages? Is the opposition of employers 
to workmen's compensation and to social insurance based 
on any real or ultimate disadvantage to themselves or to 
industry, or is it simply a blind holding-on to existing con- 
ditions, and opposition to change? Will the establishment 
of insurance be coupled with any alarming tendencies toward 
a reduction of thrift or an increase of accidents? An answer 
to these questions must be given before a fair estimate can 
be arrived at of the social desirability of any given measure. 
Is there a balance of advantage in securing the benefits of 
the compulsory insurance of workmen at an expense of a 
burden of unknown weight upon employers and industry? 

1 Cf. translation of law in Reichs-Arbeitsblatt, XI. 858 et seq. 
2 Cf. Zeitschrift fur die gesamte Versicherungs-Wissenschaft, XII. Rund- 
schau, columns 449-50, 676, 1303-04 (1912). 



CHAPTER III 

THE BURDEN OF ACCIDENT COST 

In the United States, of the total cost of accident, sickness, 
and infirmity, no considerable part has been laid on the 
employer. The employer has been made legally responsible 
for a share of the cost only in case of accident. Liability has 
been imposed under the common law of negligence, de- 
veloped by interpretation and amended by statute. In the 
last few years workmen's compensation legislation has been 
enacted in many states. 

The amount of the burden of cost laid on industry has 
varied with changes in the law of liability, in its interpreta- 
tion, in the zeal with which claims for liability have been 
pressed, in the character of awards for damages, and also 
with changes in the rate of accident. The main features of 
the changes in the law of liability are well known and scarcely 
need discussion. But the amount of the burden laid on 
industry with a given legal liability depends to a large 
extent upon the attitude toward liability for accidents pre- 
vailing among workmen and in the community. It may 
therefore be worth while briefly to review changes in this 
attitude toward employers' liability, and to show the 
connection between these and changes in the common law 
and in the burden laid upon employers. 

In the medieval system, under conditions of service or 
servitude, there was no liability of master to servant. Com- 
pensation could be recovered by the master if the servant 
was injured or killed by the act of a stranger. It was a 
change of far-reaching significance when the right to recover 
was held to vest in the victim. But the victims were slow 
in recognizing the importance and in reaping the fruits of it. 

38 



THE BURDEN OF ACCIDENT COST 39 

Accidents used to be accepted by all classes as a manifesta- 
tion of the will of God . I n seafaring, one of the preeminently 
dangerous occupations, death or injury was hardly regarded 
as unusual. There was little thought of holding the em- 
ployer liable for losses due to accident. Accidents were so 
often caused by the action of the forces of nature that to hold 
the employer liable would have seemed like holding him 
responsible financially for the acts of God. Where this 
theistic explanation of accidents did not prevail, the in- 
dividual was held to be responsible for his own fate. Ac- 
cidents were caused only by gross carelessness on the part 
of the injured man. Any one observing ordinary care could 
avoid injury. Where such conceptions as these prevailed, 
no great burden was laid on industry by common law 
liability for negligence. 

As large-scale production has become more prevalent, 
as factories have increased in size, and as larger groups of 
workmen have been brought together in a common place of 
work, this conception of individual responsibility has been 
modified. In the first place, it becomes obvious that a 
workman may be injured by the act or negligence of a fellow 
servant, for whose acts he is in no way responsible and over 
whose selection he had no control. In the second place, 
where large numbers of workmen are brought together, it 
becomes possible to observe a conformity to law, a regularity 
in the frequency of accidents. Given men of average in- 
telligence and carefulness, a certain number of accidents of 
a given type will occur every year. It becomes possible 
to predict with some approximation to accuracy how many 
accidents will take place among a large group of workmen. 
Whether a particular man will be injured depends on specific 
causes, but these are no longer looked upon as the only 
significant facts. Where workmen can be observed and 
treated in groups, the importance of the group result begins 
to be appreciated. 

The new appreciation of the significance of accidents has 



40 SOCIAL INSURANCE 

caused a change in attitude toward compensation for in- 
juries. Employers of large groups are more ready to rec- 
ognize the justice of a system of compensation based on 
the group phenomenon in place of insisting on a principle 
of individual responsibility no longer applicable to all cases. 
Workmen, observing accidents caused by negligence of 
fellow sen-ants affecting men in other departments, have 
become conscious as a group that the old system in many 
cases wrought hardship and was unjust. Close association 
of large numbers in factories has favored the development 
of a group consciousness. Legislators have gradually come 
to the conclusion that social welfare demands that men 
injured in accidents be adequately compensated, if only 
to avoid penalizing their dependents and survivors. Ac- 
cidents may seem to be caused proximately by special in- 
dividual causes; yet the group result, the regular recurrence 
every year of nearly the same number of accidents, makes 
an adequate provision for survivors and dependents, who 
are in no way to blame for the accident, the only reasonable 
course for an enlightened social policy to pursue. 

"With such an attitude prevailing, claims for damages will 
tend more and more to be pressed to the legal limit, awards 
of damages by juries will be more and more favorable to 
plaintiffs, till finally employers' liability- legislation is super- 
seded by workmen's compensation laws. 

These changes in point of view bring out the significance 
of the changes in the common law of liability. At first the 
employer was liable for damages only if he was proved to be 
negligent, and in few cases was it possible for satisfactory 
proof to be brought. The industrial revolution, the develop- 
ment of the system of factory labor, the introduction of 
steam transportation, brought new problems of the relation 
of negligence and accident for the courts to decide; the 
common law was extended by new interpretations suggested 
by the view of justice and public policy held by the judges 
making the decisions. These interpretations in most cases 



THE BURDEN OF ACCIDENT COST 4 1 

ran counter to the change in attitude toward accidents 
caused by the new conditions. The fellow-servant doctrine 
held that the employer was not liable for damages if the 
accident was caused by a fellow servant. Let the injured 
man recover from the workman at fault. The doctrine of 
assumption of risk held that the employee was familiar with 
and assumed the risk of employment. Where repairs had 
not been made, or where safety laws had been violated, the 
employee could not recover damages if it could be proved 
that he knew of these conditions and had neglected to give 
notice of defects; he lost his claim to damages if he con- 
tinued to work after a reasonable time had elapsed and 
nothing had been done. Contributory negligence, no 
matter how slight, on the part of the injured workman 
forfeited all claim to damages. 

Modifications in these doctrines were made when the 
essential hardship of the rules of interpretation was realized. 
These modifications were made in the newer court decisions. 
Employers' liability laws were passed, codifying these and 
introducing other changes. One important change in- 
troduced was the shifting of the burden of proof in case of 
workmen injured in railroad accidents. The workman was 
no longer required to bring proof of the negligence of the 
employing corporation, but the employer had to prove that 
there was no negligence on his part, or offer some other de- 
fence to escape liability. The fellow-servant doctrine was 
modified. Superintendents and foremen, men in an over- 
seeing or directing capacity, were regarded as agents of the 
employer, to whom the fellow-servant rule no longer ap- 
plied. Workmen employed in different departments of 
an industry were no longer classed as " fellow servants" in 
the meaning of the legal phrase. The doctrine of assump- 
tion of risk was definitely excluded as a defence where safety 
laws had not been observed or had been violated. 

These modifications of the common law, coupled with 
the increasing readiness of injured workmen to press their 



42 social msuBAiiCS 

claims for damages, have placed upon employers a larger 
and larger burden of accident cost. Employers have been 
forced to pay damages for accidents in a gradually increasing 
proportion of cases of accident. The amount of damages 
awarded depends somewhat upon the concept of a fair 
award for injury prevalent in the community or among 
workmen. The standard of a fair award is probably rising. 
as more and more importance is placed on human life. 
Juries nowadays are more likely to make high awards than 
formerly, especially where the employing company is a 
railroad or a large corporation. On the other hand, efforts 
are made systematically by large corporations, employers 
of large numbers of workmen, and insurance companies to 
reduce the amount that they are called upon to pay. Cases 
in court may be fought to the last ditch in the effort to 
exhaust the financial means of the claimant for damages or 
to discourage other claimants. Sometimes cases are ap- 
pealed to secure judgments that may serve as favorable 
precedents for future trials. More frequently cases are 
settled out of court for a small sum in ready money, which 
though far less than adequate compensation, may be ac- 
cepted in lieu of expensive litigation and a larger contingent 
award of damages. 

All the factors thus far considered have worked together 
to increase the burden of accident cost. There remains the 
question of the accident rate. The total number of acci- 
dents since the great increase of population following and 
accompanying the industrial changes of the last century has 
undoubtedly increased enormously. The accident rate, 
or the number of fatal or serious accidents per iooo workmen 
exposed to risk, has probably decreased. Seafaring is not so 
dangerous as it used to be. The steamship is probably 
safer than the smaller sailing vessel. Wireless telegraphy 
can now summon aid to men on a ship burning at sea or 
sinking after a collision with an iceberg. The danger of 
accident in coal mining was greatly reduced by the inven- 



THE BURDEN OF ACCIDENT COST 43 

tion of the safety lamp, and improvements in hoisting ap- 
paratus and in other mining machinery have undoubtedly 
reduced the accident rate. The railroad has made possible 
grewsome mass-accidents involving passengers and em- 
ployees that attract the attention of the public to the dangers 
of traveling; it has also made tramp life more dangerous; 
but there is little reason to suppose that the accident rate 
per 1000 employees is much greater than for the means of 
transportation extensively used before the introduction 
of the steam locomotive. Railroad accidents have been 
decreased by the introduction of the block system, by the 
use of safety coupling devices on freight and passenger cars, 
and by the use of cars with steel frames. Careful selection 
of employees and early pensioning and retirement of men 
subject to the greatest strain have had an effect in reducing 
the accident rate. Factory labor, even where machinery is 
extensively employed, is not necessarily dangerous. Woolen 
and silk manufacture rank among the least dangerous oc- 
cupations. 1 Some of the occupations least affected by 
industrial changes remain among the most dangerous, — for 
example those of the general laborer, the coal heaver, the 
dock laborer, the costermonger, and the fisherman. Even 
for agricultural labor there is little reason to suppose that 
the risk of accident has increased with the increase in the 
use of agricultural machinery. The old fashioned scythe 
probably took a larger toll of accident victims than the more 
modern mowing machine. Minor accidents, especially 
those requiring surgical aid, often proved serious or even 
fatal in the days before the discovery of antiseptics and 
before modern surgery had been developed. Immediate 
attention to injuries made possible by preparation for 
"first aid to the injured" in large establishments reduces in 
many cases the seriousness of the consequences of accident. 

The decrease in the accident rate for serious or fatal ac- 
cidents tends partially to offset the increase in liability for 

1 Cf. infra, 72. 



44 



SOCIAL INSURANCE 



accident placed upon industry and the greater liberality in 
measuring awards of damages. 

The best evidence of the burden of accident cost borne 
at present by industry in this country is afforded by quota- 
tions for employers' liability insurance made by insurance 
companies. Rates are expressed as percentages of pay 
rolls. They vary with the frequency of accident in the 
industry considered. They vary also according to the law 
and interpretations of the law in the different states. An 
investigation in 1910 into the cost of employers' liability 
classified the states into nine groups according to the average 
premium charged to cover liability in representative oc- 
cupations. New York stood in Class V, midway between 
the highest and lowest quotations. From the figures quoted 
in Table I and other tables an idea can be formed of the 
burden of accident insurance now placed upon industry in 
various occupations. 



TABLE I 

COMPARATIVE RATES IN CERTAIN DANGEROUS INDUSTRIES 



Industry 


New York i 

Employers' 

Liability Law 


New York 

Workmen's 

Compensation 

Law of 191 


Accident 

Insurance 

German y's * 

1908 


Carpentry 

Bridge building (iron) . . . 

Quarries (stone) 

Railways (steam) 

Tunneling 


$i-75 
4-5o 
2.00 
2.50 
4-50 
2.00 


$5.00 

12.50 

7-50 

10.00 

12.50 
6.25 


$2.32 
4.21 
3.18 
1.82 
3.75 


House-smithing 


I.36 







1 The Report of the United States Employers' Liability and Workmen's 
Compensation Commission, II. 282. "The New York rates are average 
rates actually charged, given on the authority of an officer of a leading 
company." 

2 M. M. Dawson, Cost of Employers 1 Liability and Workmen's 
Compensation Insurance, in Bulletin of the Bureau of Labor, XXI. 
778-783 (September 1910). 



THE BURDEN OF ACCIDENT COST 45 

If a transition is made from employers' liability to work- 
men's compensation, with more adequate benefits for in- 
jured persons and their survivors and dependents, some 
increase in the burden of accident cost must naturally be 
expected. How great will that increase be? Some light 
is thrown on the amount of increase by the figures given 
above, quoted by insurance companies for insurance of 
employers against payment of compensation benefits . The 
insurance company in return for a percentage of wages paid 
agrees to pay all benefits required under the workmen's com- 
pensation law. In six principal dangerous industries in 
New York State, the rates for a liberal benefit under the 
compensation law of 1910, later declared unconstitutional, 
were approximately three times the old rates charged under 
employers' liability. This may be taken as an outside 
estimate of the difference in cost of workmen's compensation 
and employers' liability in these dangerous trades in this 
state. In the nature of the case the rates charged under the 
compensation act were tentative, based on estimates of cost 
rather than on experience. These charges would be more 
likely to err on the side of greater profit than to fail to cover 
the risk. Mutual companies would not hesitate to charge 
an excess premium, part of which could be returned later if 
the cost was found to fall below the rate charged. 

For comparative purposes the rates in percentage of 
pay roll for Germany have been added to the table. The 
German rates represent the yearly cost of liberal benefits 
as assessed by mutual employers' associations on a cost 
basis. They are based on the yearly requirement for 1908. 
Each year the cost of current pensions only is levied; the 
number of new pensions granted exceeds slightly the number 
of those which are withdrawn because of death or recovery 
from injury. This cost will normally continue to increase 
slowly, but with a slackening rate, for some years to come 
until the total number of pensions cancelled equals the total 
number added. In 1908 twenty- three years had already 



4 6 



SOCIAL INSURANCE 



elapsed since the establishment of compulsory insurance, 
and the annual rate of increase had become so small that 
the rates may be accepted as nearly equal to the full cost of 
adequate workmen's compensation in Germany. 1 

The comparison is an interesting one. In only two cases 
are the rates for adequate compensation administered at cost 
in Germany greater than the liability insurance company 
rates. In every case the quotation for workmen's com- 
pensation in New York was over twice, and in three cases 
over three times, the cost in Germany. This exhibit is the 
more remarkable because compensation for industrial 
accidents is measured on quite as liberal a basis as that pro- 
posed under the New York law of 1910, and as the form of 
quotation eliminates the difference in the level of wages in 
Germany and New York as a factor affecting the quotations. 
It is probable that the accident rate in New York is greater 
than in Germany. There are unfortunately no satisfactory 

1 The figures for the total number of pensions current, the new pen- 
sions added, those subtracted, and the net increase are as follows for 
the years 1908-1912. They apply to the pensions granted by the 
Industrial Employers' Associations. 

INDUSTRIAL ACCIDENT PENSIONS, GERMANY, I908-I912 





Number Pensioners 


Total 

(D + (2) 

(3) 


No. 

Subtracted 

(4) 




Year 


From 
Previous 
Year (1) 


Added in 

Fiscal Year 

(2) 


Net Gain 

(5) 


1908 

1909 

1910 

1911 

1912 


448,878 
459,775 
462,162 
463,939 
457,915 


74,58i 
70,986 
69,311 
70,423 
74.488 


523,459 
530,76i 
53L473 
534.362 
532,403 


63,684 
68,599 
67,534 
76,447 


10,897 

2,387 

1.777 

— 6,024 



This shows an average increase of .5 per cent per year, or 2.1 per cent in- 
crease in the four years in the total number of pensions current. Columns 1, 
2, and 3 are taken from Amtliche Nachrichten des Reichsversicherungsamls, No. 1, 
January 15, 1910-14. Table I. 



THE BURDEN OF ACCIDENT COST 47 

statistics that can be used for comparative purposes. A 
greater frequency of accidents would account for part of the 
excess of the rate here, but hardly for the entire difference. 

To throw more light on the question of the proportion 
of the cost of accident compensation which merely covers 
the burden of employers' liability, the rates in a number 
of industries not specially selected for danger are compared, 
in Table II, with German assessments and state and private 
company rates for workmen's compensation. For a major- 
ity of these industries the German rates are higher than 
the present charges. The quotations of the state insurance 
funds are slightly higher than those in Germany, though 
usually for a less adequate benefit. The rates quoted by 
the private companies for workmen's compensation are in 
most cases very considerably in excess of the state insurance 
rates and much higher than the cost in Germany. In a 
particular industry accident conditions in Germany may 
be different from the conditions in this country. It is 
possible that the frequency of accidents is less there after 
twenty-three years of accident insurance than in this country. 
If the rates in Germany may be accepted, with reservations 
for differences in accident rates, as a rough index of the cost 
of compensation, and the premiums of employers' liability 
insurance are expressed as percentages of this cost, the 
median of these percentages indicates that approximately 
one half of the cost is now laid on industry. 1 As a conserva- 
tive estimate one third or possibly two fifths of the cost of 
workmen's compensation is already laid on the employer 
in these industries. 

1 The average indicates that three fifths of the cost is laid on industry, 
but the median is the more significant index. 



4 8 



SOCIAL INSURANCE 



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m 2 

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2 «< 
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THE BURDEN OF ACCIDENT COST 



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50 SOCIAL INSURANCE 

NOTES ON TABLE II 

Figures for New York are from Bulletin of the Bureau of Labor, XXI. 
821-823, No. 90 (September, 1910). They represent premium rates 
in the form of percentage of payroll as charged by insurance companies 
under the old law, from the Employers' Liability Manual. The rates 
for employers' liability are different in different states. The Manual 
of Liability Insurance graduates rates in nine classes, Class I a maximum 
and Class IX a minimum. In New York the rates of Class V are 
applied. The rates of assessment for Germany are taken from the 
table, I. c, 778-783. The selection of industries, together with the state 
and private company rates for workmen's compensation, are taken from 
Workmen's Compensation Laws of the United States and Foreign Coun- 
tries, in Bulletin of the United States Bureau of Labor Statistics, No. 126, 
126. 

Some idea of the scale of compensation paid may be formed from 
the following comparison of benefits for permanent total disability. 

Germany: two thirds of "annual wages" for life. Only one third of 
the annual earnings in excess of 1 800 marks ($450) is counted in com- 
puting the "annual wages." 

Nevada: 50 per cent of wages for 100 months, $20 minimum, $60 
maximum, total compensation not to exceed $5000. 

Ohio: 66| per cent of wages till death, $5 minimum (per week), $12 
maximum. 

Washington: $20 per month if single; $25 if married, for each child 
under 16 years, $5 per month, not over $35 in all. 

Illinois: 50 per cent of weekly earnings for 8 years, $5 minimum, $12 
maximum up to a total of $3500. If complete disability still continues, 
then a compensation is paid during life equal annually to 8 per cent of 
the death benefit, not less than $10 a month. (This equals roughly 
one fourth of the annual earnings.) 

New Jersey: 50 per cent of wages for 400 weeks, $5 minimum, $10 
maximum. 

Wisconsin: 65 per cent of wages; if nurse is required, 100 per cent 
after 90 days; no total to exceed 6 years' earnings. 

Data are taken from chart facing p. 48 of Bulletin of the United 
States Bureau of Labor, No. 126. For Germany, cf. Dawson, Social 
Insurance, 11 1-2. 

The rates of private companies as well as the state rates are of course 
more or less tentative. In so far as the private companies are mutual, 
the excess in the rates assessed over cost would be returned in dividends 
to the members. 

The Bulletin of the Bureau of Labor gives besides the regular quota- 
tions of the Employers 1 Liability Manual an estimate by an employers' 



THE BURDEN OF ACCIDENT COST 5 1 

The comparison of the insurance rates quoted by private 
insurance companies for workmen's compensation with 
those of the state insurance funds and the German assess- 
ments suggests that there is a large element of waste in 
excessive cost or excessive profit in the system of private 
insurance. Costs of administration under the compulsory 
insurance systems of Germany, Austria, and Norway equal 
approximately n per cent of the total assessments, while in 
Great Britain under private voluntary insurance the expense 
eats up at least 40 per cent of the premium receipts. 1 What 
is the state of affairs in the United States? What propor- 
tion of the amount which employers pay really reaches the 
workmen injured? Is the compensation received by the 
workmen adequate? How large a proportion of the cost 
still rests on the injured employee and his family or sur- 
vivors? 

Of the payments which the employers make for insurance 
and protection only a small proportion actually reaches those 
in need of compensation. The statistics in the report of the 
New York Commission on Employers' Liability give in- 
formation on these points. Ten companies which reported 
their employers' liability business separately received in 
three years $23,523,585 in premiums and paid out in the 

liability insurance manager of the premium rates actually realized. 
It is suggested that in many cases the rates actually charged are lower 
than the manual rates. The average of the percentages which these 
estimated rates form of the German rates is 50 per cent; and the median 
is 40 per cent. 

The assessments of the mutual employers' associations do not cover 
the cost of medical attendance and sick money during the first thirteen 
weeks. These are provided by the Sick Funds. It is estimated that 
the Sick Funds bear twelve per cent of the cost of accident compensa- 
tion. Consequently the figures given for the rates of assessment must 
be increased on the average twelve per cent to cover the entire cost of 
accidents. Cf. Lass and Zahn, Einrichtung und Wirkung der deutschen 
Arbeiterversicherung, 185 (1900). 

1 Bulletin of the Bureau of Labor, XXI. 750. 



yi = - ::ai : z-z ?_-z- : z 

s-a_zze zlzze 5: = = : -_ = ::: ir ; zr. es Iz zze ■=■•:. -is ::' zze 
Izzzmiiizz Frzzz :zzii za'zle z Is :le.ar zza: :z zz a zrzzr 
:zly ~ : z }- z«e: :::.: :: -zzz~. ezzzlzyers : ay zz zrerzizzzzs ::: 
..a :..-";• zaiZzzzLze := razz — zze :-::.tZti: :: :, a: •"li and 
suits. In oilier words for e n r$ : : paid : _ : ye zz p I : 

f :: ::::e:zzz araizzs: z_az ry :; zzelz zz; _:ez ^:rizzez r: 

zlzar $5: ii z.ni z: zz:s-e -zrzzztz 5} z:es :: pay zze 
salaries :: azzzrzeyi aza zlazzz :;:::• ~za : se zazsizesi z Ls :: 

ZtZZZ: ZZr zlzlzZi II ZZe ZZ yzzez "I ZZr ZZSZi II 5-1 I Z.ZZ 

zzizzess z: Z: rzsas :: azzzzrzizrazziz iz: :: :::z: 

_z~-rzs :ees :z zze size :: zze :.iz:z zzrzzer rezzze-z 

Z: aZZZZZ." ~ZZ ";.t "* v -~ \. ; -. v TtLt " rl _z 

Z:Z"-:Zr Z:r: LZ'-'cSZ TIZttZ I V Z'.r _ Z ZZZZLiil I Z ZZt :Zt I! 

the fee in 14 cases was less than 25 per cent; ir_ : : cases :e- 

— ■':::. : : zz: }j. : lzc: zz Lz " Lzases frizz - ; :.: _: : z«e: 
z:z zz: zz :_ zzses : er = : ze: zz lz 15: zzzz 
z--: z':i:.z:z : zze _zz:: -Jezzrzzzer: :: 1 « e~ : ::z 
5za:e ZtZZ. zzz:: ::z:z:.f: fees azzz zzszs zzzl zzr zed 
z :: "zz z:: z z^z zal rrzss zeoezzzs :::zz -~.z . :yers 

5:azsz:s :: azzizerzs sz:- zzz: zze ~ zrzzzaz frecyzezzly 
rezi zzz.zz arz zza: zz a larze zr:z:z: :z ::" zases :ze 
compensation paid is inadequate. In 114 casi 
zztz kzlle-i :y zzzizezz zz Erie ~ : zrry zz : :•: 
:ze z:za~ : ;zzzez5az:z z-azz :y ezzz.iyers :z 
zz: :: :.z za_ses ~-zas z;:z.zz zz zz: zzzee:: 
:l:sez zases zze -zzziz: sz~zv:rs rezez-z 
$500. Of 67 similar cases of married men kul 
zazzaz Bzrzzgzz :: : z-ez zez: received ess zzzz 
one fourth received nothing. Of 236 fatal case 
zz arzazzzz ::" zzzzzezzsaziiz zzzz zeer 



i^irt? 



;-;- r.-i ;-• - Z;v. .-• :;o; ;.; ."-..-v/,- :".:..: :>„> :,..>:■ 
.:: ..-. ; i -r :.J : - ■ : z ,y ?j:r; y_ V-:z 
I.--: it:-::.: ii ."..: z -: :; :- Z"- I-";-;: .':-.-.;.:;..-. 
: .-.:■:. ■■: .; '"': ■ -""^ Ti'z ~. : "■->. . i :;.: ■ ;z !i -.:._: :i-_ :-,- ::.r 
■ :: : ;e: :t": :: :Jic p-:ss :r:t .::? :'::~ =-_:.: t-f 



THE BURDEN OF ACCIDENT COST 53 

125, or over one half, received nothing more than funeral 
expenses. 

The statistics of accidents reported on by the Labor 
Department of New York corroborate the conclusion that 
much of the loss is borne by the workingmen. Ten hundred 
and forty accidents were reported on. Of 902 cases in- 
volving temporary disability lasting from one week to over 
a year, 404, or 44 per cent, resulted in no compensation. 
In 304 cases the amount recovered was less than half of the 
money loss of wages and expenses. Seventy-one accidents 
resulted in permanent partial disability. In 18 of these 
nothing was paid, in 22 $100 or less, in 14 between $100 and 
$500 ; 90 per cent of the closed cases received less than $500. 
In nine out of ten accidents resulting in permanent complete 
disability the payment was less than $500; one suit was 
still pending. Fifty-seven accidents were fatal; 35 out of 
the 49 closed cases, or 71.4 per cent, received less than $500 
compensation. 1 

An attempt was made by the Commission to balance the 
losses suffered by the workingmen against all receipts from 
employers. In the 902 cases of temporary disability losses 
in wages and in medical expenses amounted to $86,876.56. 
The receipts from employers equalled $25,338.87, or 29.2 
per cent of the total loss. For 61 cases of permanent partial 
disability, losses up to the return to work not including 
losses in earning power, were $32,727.04 as against $11,- 
048.81 received from employers. Only 33.8 per cent of the 
losses as thus calculated were compensated. The ten cases 
of permanent complete disability where full information was 
obtained showed a loss of $18,049.95, estimating the per- 
manent loss in wages as equal to three times the yearly 
earnings. Only $1,749.80, or 9.7 per cent of the loss, was 
received from the employer. For 53 fatal cases, including 
three-years' wage loss, losses of $113,919.95 were offset by 
but $25,960.53. Only 22.8 per cent of the losses were com- 
1 Report of the New York Commission, 20-21. 



54 SOCIAL INSURANCE 

pensated by the employer. Estimates for in fatalities 
to married men investigated by the Commission, showed 
losses of $299,901 which were offset by $51,957, or 17. 1 
per cent, received from employers. 

Other investigations arrive at similar results. Out of 
355 fatal cases investigated by the Pittsburgh Survey, 57 
per cent of the dependent families received nothing. Of 
288 cases of injury, 56 per cent received no compensation. 1 
Of 306 non-fatal cases, the reports of which were received 
by mail from the workingmen by the Wisconsin Bureau of 
Labor and Industrial Statistics, only 91, or 29.7 per cent, 
received anything in addition to doctors' bills. Seventy- 
two, or 23.5 per cent, got nothing. In 131 non-fatal cases 
reported on by the factory inspectors, only 10, or 7.6 per 
cent, received anything in addition to doctors' bills, while 
28, 21.4 per cent, received nothing. The remainder re- 
ceived part or all of the medical expenses. In 51 fatal 
cases, 32 out of 51 received less than $500, 8 secured over 
$iooo. 2 

The conclusions to be drawn are clear. Under employers' 
liability the burden of accident cost placed upon the em- 
ployer has gradually increased till now in states with laws 
imposing an average burden it equals roughly one third of 
the cost of adequate workmen's compensation. Only a 
small proportion of the premium paid by the employer ac- 
tually reaches the injured employee or his family. The in- 
crease in cost incurred by transition to workmen's compensa- 
tion could be materially reduced by elimination of the waste 
which characterizes employers' liability. A reduction in 
accident rates, hastened as in Germany by increasing the 
burden laid on the employer, would make the transition 
easier. Under these conditions the balance of social ad- 
vantage seems to incline definitely toward the adoption of 
adequate workmen's compensation legislation. 

1 Report of the New York Commission, 24. 

2 lb., 24 et seq. 



CHAPTER IV 

INCIDENCE OF THE BURDEN OF ACCIDENT COST 

Prior to a regular system of insurance, the burden of 
damages for negligence in accident cases rested with the 
employer and his business. Accidents and especially 
awards of damages were rare. The employer could not 
make allowance for them in his costs of production. They 
reduced his profits or swallowed up his accumulations. 
Awards for damages affected the individual employer and 
not the trade. The employer could not raise the prices 
of his goods or services to shift the cost to the consumer, 
nor could he reduce wages. The loss remained on the 
employer upon whom it originally fell. 

After the enactment of liability laws, the employer as a 
rule sought to protect himself against unusual losses by 
taking out indemnity insurance in an accident liability 
company. 1 Being required to pay damages for injuries 
independent of personal or delegated negligence, he wished 
to equalize losses and escape the danger of ruin from a 
sudden disaster in his establishment. This is a risk to 
which ordinary insurance principles can be applied and the 

1 As a consequence of the legal enactments regulating employers' 
liability, different insurance associations were formed to meet the special 
liability thus imposed. Immediately following the enactment of the 
German Liability Law of 1871 the first accident liability insurance 
company was organized, the Allgemeine Unfallversicherungsbank of 
Leipzig. Following the employers' liability act of 1880 in England, 
insurance indemnity was offered by the new Employers' Liability Assur- 
ance Corporation of London. This company entered the United States 
in anticipation of the enactment of the Massachusetts Employers' 
Liability Act of 1887. Cf. Haftpflichtversicherung, in Handworterbuch, 
3d ed., V. 226. Also, Liability and Compensation Insurance, a series 
of lectures delivered before the Insurance Institute of Hartford, 5 
(1913). 

55 



56 ."L-.l H50KAKB 

rates can be adjusted on the basis of experience to cover 
the amount of risk. 

The substitution of liability insurance for the crude 
payment of the award makes it possible for the employer 
to reckon with the liability cost as one of his expenses of 
production. An attempt will be made to shift it to the 
purchaser in the shape of higher prices or to pass it on to 
someone else. It no longer can be considered sin; r/ 15 = 
HslHrtkw of profits. The legal thecr : :.:: :he -::::-■ 
~.:.z :;st of compensation, asam^ in the common 
argument that a compensation law is unconstitutional 
because it takes away the property of employers without 
due process of law, is not true economically from the time 
when an insurance premium takes the place of direct awards 
for damages. Here a complicated economic process begins 
to play its part, and the burden is distributed. Claims 
which are adjusted by the employer outside of his contract 
with the liability company and claims arising outside of 
the contract for which the employer is liable may r of < 
still mean sometimes a reduction of profits. 

I ■ connection with the question of the incidence of 
dent x>st 1 ijustments of wages may be discussed. It is 
always possible that an increase of the cost laid upon em- 
ployers by employers' liability laws or by workmen 5 
compensation may result in a decrease of wages paid to 
labor. As a converse proposition, it has often been argued 
that, in the absence of accident insurance cost levied on 
employers, wages are enough higher to correspond. 1 Where 
the absence of burden on employers makes conditions 
:i- :rable to industry, employers, it is urged, can anc — .__ 

T :r example H Qexlnrr, Die dffentlichen Lasten der 
Indus: ■ \1 made Jakrbucker, CXLIJ =_: :::: 

— _.- zr : it 
fiw &re Versicherung zn sorgen mid bei 
rrit: .::: .-._-: -t --pier 

- r— '_-'-'' ":t _ . "1: 




INCIDENCE OF ACCIDENT COST 57 

pay more; where workmen have to insure themselves, they 
demand more in wages. It is argued that wages in dan- 
gerous trades are adjusted to the degrees of risk. The 
implication is that the employer does actually bear the 
entire burden of accident insurance under present condi- 
tions, because of the ability of the worker to force upon 
the employer in increased wages the cost of accident insur- 
ance, or through the action of economic forces of which 
both employer and employee are ignorant. If the wages 
are adjusted in this way, the laborer is held to be entirely 
responsible for the failure to take out insurance. 

The question to be examined is a question not of the 
general level of wages, but of differences of wages in different 
occupations. Legal theory, in a sort of judge-made eco- 
nomics, assumed that wages would be adjusted in the 
wage contract according to the degree of risk. The work- 
man was assumed to be entirely rational, as the "economic 
man" of the classical economists, possessed of competent 
knowledge, and with ability and power of bargaining suffi- 
cient to insist on such an adjustment. This is expressed 
in the words of Chief Justice Shaw in his decision in the 
leading case of Farwell vs. Boston and Worcester: 1 

The general rule resulting from considerations as well of justice as 
of policy, is that he who engages in the employment of another for the 
performance of specified duties and services for compensation, takes 
upon himself the natural and ordinary risks and perils incident to the per- 
formance of such services, and, in a legal presumption, the compensation 
is adjusted accordingly. 2 

Is there any basis in fact for this presumption? 
The cause of persisting differences in wages in any par- 
ticular labor market lies in the action and inaction, prefer- 

x 4 Met. 49. 

2 For a discussion of legal theory from the economic standpoint, cf. 
Industrial Accidents and Employers' Responsibility for Their Compen- 
sation, in Seventeenth Annual Report of the Bureau of Labor Statistics of 
the State of New York for the Year i8gg, Part II, 648 et seq., 673 et seq. 



58 SOCIAL INSURANCE 

ences and dislikes, and differences in the ability of labor. 
If a higher wage is paid in a dangerous industry for labor 
of a given degree of skill than in a relatively safe occupa- 
tion, it is paid not because the employer is able to pay more 
but essentially because the employee demands more. 
If the laborer does not avoid the occupation, but is willing 
to work there for the same wage as he gets elsewhere, the 
employer in a dangerous occupation simply calculates his 
costs on that basis. His business is adjusted to the cost 
of labor. The dangerous nature of the industry would 
not of itself render it so profitable that it would without 
pressure on the part of labor give it a higher wage. It 
follows that a theory that wages are adjusted in proportion 
to the risk must explain why a higher degree of risk causes 
labor to demand and enables labor to secure a higher wage. 
Whether or not differences in wages will persist after work- 
men's compensation is introduced, whether accident com- 
pensation will cause a reduction of wages in risky trades, 
will depend on whether these causes are affected. 

An adjustment of wages to the degree of risk might be 
caused: (i) by the inclusion in the standard of living of all 
workmen of an item of accident insurance, or (2) by the 
avoidance of dangerous occupations by labor, together with 
the insistence upon higher pay to compensate for the 
degree of risk by those who remain in them. 

If all workmen included in their standard of living 1 
provision for accident insurance, there would result an 
adjustment of wages according to the risk. The cost of 
insurance would vary with the degree of danger. Work- 
men would have an accurate measure of the degree of 

1 The "standard of living" as used here is conceived to have an effect 
on wages not through an ultimate or remote change in the supply of 
labor but through its effect upon the laborer's conception of a "fair 
wage" or a "decent wage," a concept which is of considerable impor- 
tance in determining what wages unionized labor (and to a less degree 
non-union labor) demands and with what energy and solidarity work- 
men press their demands. 



INCIDENCE OF ACCIDENT COST 59 

danger in that cost. Having thus a definite knowledge of 
the cost, an adjustment could be effected through an insist- 
ence on a higher rate of remuneration for the extra risk. 

There is, however, no general accident provision made 
by all workmen. Accident insurance is not now part of 
the standard of living of the working class. There can 
therefore be no general adjustment of wages to risk on this 
basis. 

If, in any special occupation, accident insurance becomes 
part of a minimum standard of living, and it is insisted 
upon by all the workers in the trade, it may be possible 
to secure higher wages to compensate for risk. Resistance 
will be offered to a decrease of remuneration which cuts 
into the standard, and there will be cooperation among 
workmen to enforce it. But only if the inclusion of insur- 
ance is generally a part of the standard will there be this 
psychological force tending to join the entire body of workers 
together in cooperative action. Where the employees of 
railroads, for example, pay definite sums each year into 
the treasuries of the railroad brotherhoods, there is an 
adequate basis for the theory that wages in that employ- 
ment are adjusted so as to permit of general accident insur- 
ance among the employees. 

The second possible theoretical basis of the proposition 
that extra compensation is paid for extra risk is that labor 
avoids dangerous occupations or insists on higher pay. 
In other words, at the same wages for equal degrees of skill 
labor shuns the dangerous and flocks to the safe industries ; 
only with an increased offer of wages will there be an ade- 
quate supply of labor attracted to the dangerous trade. 

On this hypothesis the compensatory adjustment of 
wages will not necessarily be in proportion to the cost of 
accident insurance. It will take place on the basis of an 
indefinite "avoidance" of the trade by workmen. The 
dangers of an occupation will be merged in with the other 
characteristics which influence labor to prefer or to shun 



60 SOCIAL ::T."7_-_.NCE 

the industry, ^^ether under this theory wages would 
increase by the full amount of the cost of accident 
ance to cover the risk, by only a part of it, or by 
times the cost , would be impossible of prediction and would 
depend on the psychological effect on the workmen of the 
knowledge of the presence of danger. 

Adam Smith thought that hazard of a trade was in general 
underestimated, especially in that period of life when the 
choice of occupation was made, but he did not compare it 
specifically to the cost of accident insurance. 1 Mill sug- 
gested that wages in the most disagreeable occupations 
might, in times of an overabundir.: =urp> i::: be 

paid worst of all, because no one who could get any other 
job would accept employment iz :: ar.c ±:-se - ■ '.:.: ;.:: r. : 
other alternative would be glad to accept anything they 
could get. 2 Roscher believed that the extra wage paid for 
extra risk was not enough on the average to pay for accident 
insurance. 8 

Labor may be relatively scarce in a dangerous trade 
because of reluctance to enter the trade, because of a large 
flow of men away from it on learning of or realizing its 
danger, or because of a heavy accident or general mor- 
tal::; 

The essential difficulty with the theory of wage adjust- 
ment lies in the inadequacy of popular knowledge of the 
degree of risk. Avoidance of dangerous trades and an 
estimation of compensation can occur only if the character 
of the industry or the degree of risk is known. An ankn : wr. 
element cannot be accounted for in the psychology of the 



mk> tibm MfaBmm mad Cmmses <sf fibs Wm&tk «f S fmH rn mr, 
edited by Edwin Gmnran, I. 110-2 (1901). 

P indpLes «# PmiiSkm!, Eocm&my vmth seme <tf their ApfSkmSmms to 
Seckd PHtosmphy. I. 475 (ed. 1864 

"" 7 - " -- -'" " " 

900 (1854). "Uebrigeos pfegt der licfariUha dcr gdaMdaea 
Arbeitszweige norih. mcht rinmal zm erner -vdHeai AssecmswxgMzwac 
auszureichen. ' ' 



INCIDENCE OF ACCIDENT COST 6 1 

workman when he makes his contract. Statistics of deaths 
and minor injuries have been and are far from perfect, 
especially in this country. The average workman has no 
first-hand knowledge of the statistics, but merely a general 
acquaintance with the conditions of work. And his famil- 
iarity with the conditions of danger is more apt to make 
him less apprehensive and to breed contempt for the risk 
than to move him either to avoid the occupation or to 
demand more wages. If workmen are ignorant of condi- 
tions in a dangerous industry, or if they disregard the 
hazard, there will be no tendency to avoid it. 

If there is no tendency to avoid entering the occupation, 
then in occupations where there are no barriers, such as 
labor-union rules or the prerequisite of a certain degree of 
skill, to the ingress of new labor, other factors tending to 
reduce the labor supply can have little effect. A high 
accident or general mortality rate in an occupation will not 
affect the supply of labor, if men enter it freely. Men 
learning of danger may leave the trade quickly; but if 
others ignorant of danger are always waiting to take their 
places, only the permanence of the labor force, not wages, 
will be affected. In case of industrial diseases, familiarity 
with and dread of the results might cause men to be con- 
tinually leaving the trade. The effects of lead poisoning are 
soon learned by new-comers to the lead industries, and the 
character of the industry seems to affect the permanence 
of the labor force. 1 

The case is quite otherwise where there is popular knowl- 
edge of the degree of risk. Sometimes danger is so obvious 
that physical bravery is required. Rescue work in a mine, 
in which an explosion had just occurred, would not be 

1 "The men employed in this industry are for the most part of foreign 
birth, with a varying proportion of American born, who usually hold 
the more highly skilled positions. The work is for the most part un- 
skilled or at the most semi-skilled. It is a shifting class of labor 
everywhere. . . ." Lead Poisoning in the Smelting and Refining of 
Lead, in Bulletin of the U. S. Bureau of Labor Statistics, No. 141, n. 



62 SOCIAL INSURANCE 

undertaken for mere pay without a high extra compensa- 
tion. Timid souls shrink from such work. Brave men 
volunteer without thought of pay. In this case danger is 
evident and must be faced at once. The name of the occu- 
pation may be suggestive of danger to the most impervious 
brain. Powder mills suggest to the least imaginative the 
possibility of an explosion. An extra wage may have to 
be offered in such occupations to secure an adequate labor 
supply. Reckless men who care not if an accident occurs 
or men who have faith in their own good fortune may 
scoff at or disregard the chance of accident. 

For the rest, danger exercises little or no influence upon 
choice of occupation or on the demands of labor. A man's 
occupation is often decided by the opportunities which are 
open to him. Coal mining and seafaring are among the 
most dangerous trades. Men who have grown up in a 
seaport town are apt to minimize the danger of seafaring. 
In a mining town, mining may be the only occupation open. 
Not only is there no accurate knowledge of the degree of 
risk, but there is no common action on the part of labor 
either in avoiding the industry or in demanding higher pay. 

Among skilled and unionized workmen, where there are 
barriers to the entrance of men to the trade, the conditions 
of extra compensation for extra risk are somewhat modified. 
If there are effective restrictions on the number of men 
permitted to enter the trade, an avoidance of the occupation 
on account of danger would affect not wages but the char- 
acter of the personnel. The supply of labor would be 
limited to the number allowed under the restrictive condi- 
tions: higher wages would be paid, not on account of the 
risk of accident, but because of the control of the labor 
supply. Where the trade is not fully unionized or where 
restrictive action is not taken or is not effective, a high 
degree of danger may affect wages — if the labor supply is 
short on account of risk. If knowledge that the industry 
is dangerous and fear of danger are associated with skill 



INCIDENCE OF ACCIDENT COST 63 

and intelligence, more adjustment of wages to risk could 
be expected in skilled than in unskilled trades. But cour- 
age is usually greater among the more intelligent officers 
of an army than in the rank and file; besides, with intelli- 
gence is apt to go the knowledge of how to prevent or avoid 
accidents. A high degree of danger may affect the wage 
rate by inducing labor to act together in a more determined 
manner to secure extra compensation. If all the men 
make provision for accident insurance, extra compensa- 
tion may be demanded and obtained. If the average 
workman does not have sufficient realization of danger to 
take out an accident policy, there is little likelihood that the 
degree of danger would have any influence on the wage rate. 
Statistical evidence on the adjustment of wages to the 
risk of accident is meagre and unsatisfactory. The usual 
method of proof is to show or to state that the wages paid 
in dangerous trades are low. Adna F. Weber, for example, 
states : 

This legal fiction, however, has no basis in fact; railroad trainmen, 
for instance, obtain no more than the wages of ordinary laborers, al- 
though one out of every eleven of them is severely injured every year. 
Sailors, miners, quarrymen and other workmen in extra-hazardous trades 
are paid no more than laborers in other occupations excepting where 
the matter of skill enters into the question. * 

The absence of data as to wages and the degree of risk 
is not reassuring. According to English figures — there are 
no satisfactory American data as to occupational mor- 
tality — the comparative mortality from accident for railway 
trainmen was 115 (for all railway employees, including 
engineers and stokers, 101), as compared to an accident 
rate for "general laborers" of 120. 2 A comparison of wages 

1 Employers' Liability and Accident Insurance, in Political Science 
Quarterly, XVII. 258-9 (1902). 

2 Figures taken from Supplement to the Sixty-Fifth Annual Report of 
the Registrar General, Cd. 2619, Part II. cxci. Cf. comment, xvii. 
These remarks would apply more to the general mortality conditions 
than to the accident rate. 



64 SOCIAL INSURANCE 

in one dangerous occupation with those in an occupation 
equally hazardous proves nothing as to adjustment of 
wages to the degree of risk. 

Rubinow contends that it is inadmissible to conclude 
from the high wages paid in structural iron-working that 
an extra amount is paid for the high risk, because the high 
pay can be adequately accounted for on the basis of greater 
skill required. 1 Low pay in coal mining, for unskilled labor 
in the iron and steel industry, for loading and unloading, is 
quite as adequately explained by the low degree of skill. 
To draw the conclusion that there is no compensation for 
risk because there is a large number of occupations of 
extremely high risk and extremely low pay is equally inad- 
missible. Evidence showing that there are more unskilled 
trades than skilled in which the hazard is great is irrelevant 
to the question. 

The New York Commission on Employers' Liability 
ascertained some facts relating to the average wage received 
by persons killed or injured in accidents. The average 
pay in 224 fatal cases investigated by the Commission was 
$15.64; 24.1 per cent received less and 75.9 per cent more 
than twelve dollars a week. 2 Among the 1399 cases of 
injury of men investigated by the Labor Department, 928, 
or 66.0 per cent, earned less than $15 a week, and nearly 
one half less than $12 a week. These data have little signif- 
icance till compared with average wages. For the wages 

1 "It has never been statistically established that there is any corres- 
pondence between the comparative risk of an occupation and its remu- 
neration, such as there undoubtedly is between remuneration and skill. 
And if in a few dangerous occupations fairly high wages are given, 
it is usually found to be dependent rather upon the skill than upon the 
risk incurred (such as in structural iron- working). On the contrary, 
there are a very large number of occupations of extremely high risk 
and extremely low pay, such as coal-mining, unskilled labor in the 
iron and steel industry, loading and unloading." Rubinow, Social 
Insurance, 100. 

2 Report of the New York Commission, First Report, 91. 



INCIDENCE OF ACCIDENT COST 65 

of persons injured a comparison is made with census 
figures for the wages of 430,475 employees in 1905. 1 In 
this aggregate the median wage for men falls between 
$10.00 and $12.00 per week. The median wage in the 
group of men injured falls in the wage class $12.00 to $15.00 
per week. The median wage of 81 females injured fell in 
the same class as in the report of the Bureau of the Census, 
between $6.00 and $7.00 per week. 2 The average wage 
paid to men in New York in 1900 was $558. 09. 3 Figures 
for 1 9 10 are not given for men separately. Making all 
allowance for an increase in wages, the average wage re- 
ceived by the men killed by accident was considerably 
higher than the general average. This does not mean that 
there is any adjustment of wages to risk, but tends to show 
merely that accidents are slightly more frequent among 
the higher-paid men. 4 

An investigation of wages and accidents in the paper 
box industry in New York bears upon this question of 
extra compensation for extra risk. The accident frequency 
in the different processes of the industry varies considerably. 
The frequency of accident was compared to the wages 
paid in these processes and the conclusion was reached 
that "certain machines are inherently hazardous and yet 

1 Bureau of the Census, Bulletin 93, 150. 

2 Report of New York Commission, First Report, 213. 

3 Twelfth Census, VII. Manufactures, Part I. cxv. 

4 The analysis of the report points out that the difference in the wage 
group in which the median fell might not mean very much of a difference 
in wages in the case of 1399 men injured. Also, "There was possibly 
some general tendency toward higher wages in employees' reports than 
in employers'." Dr. Devine in commenting on the results of the inquiry 
of Mr. McLean said, mentioning that 56 per cent were earning less 
than $15 a week, "Now I submit that that has a bearing on the ques- 
tion of whether wages are fixed in such a way as to cover the risk of 
injury from accident." Report of New York Commission, 25, 27. Even 
Mr. Rubinow quotes these data, which "seem to give substantial 
evidence in support of this contention" [that wages are not adjusted 
to the degree of risk]. Social Insurance, 100. 

6 



66 SOCIAL INSl'RAXCE 

no compensator}." consideration enters into the wages. 
unless a higher degree of skill demands it." The evidence 
leaves much to be desired in the way of conclusiveness. 

Ye: a comparison of hazardous with non-hazardous processes for 
the ::.iz =5 :. ~-v: 'e. =d:~/5 :ha: ::: ~ed:an "ice ::r v;~er. '::. :;::: i- 
ons and non-hazardous occupation is identical, lying somewhere be- 
:~ee- 5- = - : 5: _: Ir. :r.e :a;c ::' ~e- :he media- wag- ::: hazard: us 
occupations is $12 be $12.99 as against $9 to $9.99 in non-hazardous. 
This difference is largely explai ne i : the fact that the Don-hazardous 
processes in which they are engaged are not peculiarly men's jobs — 
most of this kind of work being done : ; « : men — whereas the hazard : na 
occupations consist very largely of cutting, a decidedly skilled branch 
in the work. 1 

Light could be thrown on the question by examining the 
effect on wages of a change in the rate :: accident. 

The rrzs: :arr.:'.iar exarr.r'e :■: :he reiurei :.u~bc- ::' a:::iea:; :;•!- 
lowing the introduction of proper safeguards is found in the railways 
of this country since the enactment, in 1893, of the federal law com- 
pelling the use of automatic couplers; in five years the number of rail- 
way employees killed from the coupling and uncoupling of cars was 
reduced one-half and the number injured also virtually reduced one- 
half. 8 

Here surely we should find a trace of the influence of 

the reduction of the rate of accident on "tees if daere is 
any such effect. The trend of the wages of railway brake- 
men, as the class of employees most likely to be affected 

by the decrease in the number of accidents, is riven in 
Table I. 

An examination of the table of the course of brakemen's 

wages in liiderea: states shows in hve cases a slight decline 
after 1893. in one of these, Indiana, it was immediately 

made up again; in two cases there was an increase, aaa in 

1 Marie 5. Orer.;:eir:. Rip-:': :*: 2 H:.-:i ■:: A:::::-:;: r; :':■: 7::: 
Box Industry of Greater New York, in Fourth Report 'of New York State 
Factory Investigating Commission, II. 299. 

* Seventeenth Report of New York Bureau of Labor Statistics, Part II. 
559 (i8«9)- 



INCIDENCE OF ACCIDENT COST 



67 



TABLE I 

WAGES OF BRAKEMEN 1 



Year 


Number of 
Employees 


Wages 


Year 


Number of 
Employees 


Wages 




Massachusetts 






Maryland 




1889 


108 


$1.86 


1892 


520 


$1.94 


189O 


4i 


1.83 


1897 


829 


I.90 


1891 


82 


i-93 




Michigan 




1892 


84 


1-93 


1893 


457 


i-73 


1899 


2245 


1.87 


1897 


25 


1.70 


19OO 


2279 


1.87 




Nebraska 






Indiana 




1893 


457 


1.86 


1888 


3834 


1.79 


1898 


284 


1.92 


1889 


4917 


1.87 




Kansas 




1890 


5454 


1.98 


1888 


1057 


1 79 


1891 


6846 


205 


1893 


339 


1.92 


1892 


8125 


2.14 


1898 


891 


2. 11 


1893 


7909 


2.16 




Pennsylvania 




1894 


6393 


2.15 


1887 


4917 


1.79 


1895 


5450 


2.19 


1899 


2729 


1.79 


1896 


5735 


2.18 


1900 


2685 


1.84 


1898 


5563 


2.16 




New Jersey 






Montana 




18S7 


1212 


1 79 


1893 


19 


2.40 


1896 


426 


1.79 


1895 


178 


2. 11 








1896 


230 


2.04 








1897 


233 


2.04 









X A Compilation of Wages in Commercial Countries from Official Sources, 
in Fifteenth Annual Report of the Commissioner of Labor, I. 165-6 (1900). 

TABLE II 

TREND OF WAGES IN INDUSTRY, 189O-I9OO 1 



1890 


100.4 


1896 


99 9 


1891 


100.2 


1897 


996 


1892 


100.7 


1898 


100. 1 


1893 


100.9 


1899 


101.8 


1894 


98.0 


1900 


105.4 


1895 


98.4 







1 Wages and Hours of Labor, in Nineteenth Annual Report of the Com- 
missioner of Labor, 23 (1904). 



68 SOCIAL INSURANCE 

three a stationary condition of wages. Wages in industry 
during this period, 1 893-1 898, fell slightly. The depression 
in business conditions in 1 893-1 896 would be of itself an 
adequate explanation of a decline in brakemen's wages. 
There is here no sufficient evidence of an adjustment of 
brakemen's wages to the degree of danger or to the cost of 
accident insurance. 

The correlation of wages paid and the degree of risk 
might throw light on the question of extra pay for extra 
risk. The results of two trials are given. There are no sat- 
isfactory American data of occupational accident or general 
mortality, because we have no adequate occupational 
statistics either of deaths or of the general population. 
Accordingly, English material has been used. The accident 
mortality in 1 890-1 892 is correlated with the wages paid 
in different occupations in 1885. One series of 27 industries 
gives a considerable negative correlation: the greater the 
degree of risk the less the wage. The second series of 42 
industries gives a slightly larger positive correlation. In 
the former the weekly wages paid to men are used as the 
basis of comparison, in the latter the average annual earn- 
ings per employee. Only those occupations were selected 
to which a fitting accident rate could be applied. 1 

Such a correlation can be made only on the assumption 
that differences in wages due to other causes than to the 
degree of risk will offset each other if a large enough number 
of cases is taken. The results of the investigations show 
that in the selection of occupations differences in wages due 
to skill, etc., are not eliminated. In the first series a nega- 

1 The statistics of wages are taken from the General Report on the Wages 
of the Manual Labour Classes in the United Kingdom; with Tables of the 
Average Rates of Wages and Hours of Labour of Persons Employed in 
Several of the Principal Trades in 1886 and i8qi, C. 6889, 470, 477- 
80 (1893-4). The statistics of accident mortality by occupations are 
from the Supplement to the Sixty-fifth Annual Report of the Registrar- 
General of Births, Deaths and Marriages in England and Wales, Part II, 
Cd. 2619, cxci and clviii et seq. Table IV (Figures of 1 890-1-2). 



INCIDENCE OF ACCIDENT COST 



6 9 



TABLE III 

CORRELATION OF ACCIDENT MORTALITY AND WAGES 



Group 


Number of 
Industries 


Average Accident 
Mortality 


Average Normal Wage (per 
week) Paid to Men 








a. d. 


I 


4 


I25.O 


22 2.5 


II 


4 


60.2 


23 6.2 


III 


7 


40-3 


25 9-3 


IV 


8 


24.4 


25 9-9 


V 


4 


16.0 


23 0.0 



.254 



Group 


Number of 
Industries 


Average Accident 
Mortality 


Average Annual 
Earnings per Head 








£ 


I 


6 


I4.O 


42.O 


II 


7 


23.O 


43-4 


III 


11 


33-3 


49-5 


IV 


10 


50.6 


55-7 


V 


8 


112. 


59-8 



r=+.338 

tive correlation was reached simply because industries with 
a high accident rate were predominantly unskilled. In the 
second series, the skilled industries showed on the whole 
the higher accident rates. Though, theoretically, it might 
be possible to draw a conclusion by this method, if in each 
degree of skill wages in two industries with different degrees 
of hazard could be compared, yet practically no conclusion 
can be drawn from a general correlation because the assump- 
tion that differences of skill will offset each other is not 
well founded. 

A statistical answer to the question is not possible from 
the existing statistical material. We know accident mor- 
tality only for a comparatively few trades. Differences of 
accident mortality in different processes in the same trade 
have scarcely been studied statistically. Differences of 



70 SOCIAL INSURANCE 

average wages in different industries may be largely affected 
by :he proportion of skilled to unskilled labor in them. Com- 
parison of wages in different trades is inconclusive because 
of the manifold causes of variation. Correlation of varia- 
tions in accident rates with changes of wages is inconclusive 
because of the preponderating influence of other causes. 
The chief difficulty in such an investigation is the insignifi- 
cance of the differences in accident mortality as an influ- 
ence affecting wages. Other causes are more important. 
The cost of accident insurance is a very small sum per 
year: 3 per cent of the wages would pay for an adequate 
compensation in most dangerous occupations. 1 Differ- 
ences in accident risk, if adequately compensated, would 
require in case of a weekly wage of $12.00 a difference of 
from nothing to 36 cents per week; but wages for men vary 
from $7.00 and less to $25.00 and more, due to differences 
in skill, ability, etc. To look for statistical proof of a 
tendency to extra pay for the incurring of extra risk is to 
search for a needle in a haystack. 

The question might fairly be raised why there should be 
so much discussion about adjustment of wages to the 
degree of risk and practically none about adjustment of 
wages to occupational mortality. 2 The death rate from 
accident is but a single factor in the occupational death 
rate. A high death rate from accident does not always 
mean a high general mortality- for the occupation. Coal 
mining ranks among the most dangerous trades, but its 

1 Three per cent of the wages covers the cost of accident compensa- 
tion in the German coal minin g industry. The total expenditure of 
the Knappschafts Berufsgenossensckaft in 191 1 for accident compensa- 
tion was 34,865,000 marks; the total wages paid were 1,169,793,000 
marks. Cf. Amdiche Nackrichten, XXJX. No. i, 18-19 _;-_: Jan. 

10. ICI; 

s Walker suggests that to estimate real wages from nominal wages 
account must be taken of the risks of accident and of differences in 
mortality and length of life in different occupations. The Wages Ques- 
tion, a Treatise on Wages and the Wages Class, 33, 36 (1891). 



INCIDENCE OF ACCIDENT COST 7 1 

occupational mortality is considerably below the average, 
on account of the very low death rate from tuberculosis. 
The comparative mortality from accident of 123 is com- 
bined with a general mortality figure of 846. The accident 
mortality among inn and hotel servants is 53, but the gen- 
eral mortality is 1767. Comparative figures of accident 
and general mortality in a few occupations are given in 
Table IV. 

If in the wage bargain workmen were so intelligent and 
so alive to their own interests as really to insist on getting 
extra pay in proportion to the extra risk of accident, why 
should they be totally indifferent to the much more im- 
portant question of the occupational mortality from all 
causes? The reason that discussion has centered around 
the question of compensation for extra risk from accident 
rather than for extra risks from general mortality is simply 
that the former was an issue in the debate on the justice 
of assessing the cost of accidents on employers. As a 
defense it was asserted without proof that wages were 
adjusted to degree of danger. The question has only 
recently been raised whether the employer should not also 
be made liable for sickness and old-age pensions, on the 
ground that the occupation affects the sickness rate and 
the age of superannuation; but it has not yet been seri- 
ously proposed to levy upon employers in proportion to 
the occupational death rate. Even if it is urged that 
occupational conditions are a chief cause of premature 
death or superannuation, as a ground for assessing em- 
ployers and to establish the justice of such assessment, it 
will probably never be seriously asserted as a counter- 
argument that wages are adjusted to a high occupational 
mortality, or to an early age of superannuation. In view of 
the general lack of popular knowledge on these questions, 
to say nothing of the incompleteness and lack of knowl- 
edge on the part of experts, it can scarcely be maintained 
that occupational mortality or superannuation exercise 
any important influence upon the choice of occupation. 



72 



SOCIAL INSURANCE 



TABLE IV 

COMPARATIVE MORTALITY BY OCCUPATIONS FROM ALL CAUSES AXD FROM 

ACCIDENT^ 



Occupation 



A;c::;e-: 



All Causes 



Seaman, etc.. Merchant Service 

Fisherman 

Coal Miner 

Carman, Carrier 

General Laborer 

Ironstone Miner 

Railway Guard, Porter, Pointsman, etc 

Dock Laborer, Wharf Laborer 

Slater, Tiler 

Stone, Slate, Quarrier 

Coal Heaver 

Costermonger, Hawker, etc 

All Occupied Males 

Wool, Worsted, Manufacturer 

Tobacconist, etc 

Stationery Manufacturer: Stationer, Publisher 

News Agent 

Gardener, Nurseryman, Seedsman 

Shoemaker 

Printer 

Law Clerk 

Schoolmaster, Teacher 

Grocer, etc 

Gunsmith 

Zinc Manufacturer, Worker 

Cycle and Motor Manufacturer 

Artist, Engraver, Sculptor, Architect 

Bookbinder 

Silk, Satin, Crepe, etc.. Manufacturer 

Clergyman, Priest. Minister 



266 
128 
123 
121 
120 
117 
115 
106 

99 
99 

88 

83 
58 
23 
22 



1547 

892 

846 

1094 

1987 

723 

773 

1374 

1036 

905 

1144 
1778 

925 
927 

898 



22 


872 


22 


527 


21 


901 


20 


935 


2C 


880 


17 


599 


17 


670 


17 


1087 


15 


889 


14 


762 


13 


760 


13 


889 


II 


892 


9 


515 



1 The figures are from Supplement to the Sixty-fifth Annual Report 
;;' " f _ T :;.. z '-General, Part II. Cd. 2619, cxci. clviii et seq., 
Table IV. The numbers represent the number of deaths from accident 
and from all causes that would occur in a standard male population 
25-65 years of age, distributed in ten-year age groups between these 



INCIDENCE OF ACCIDENT COST 73 

limits in the age distribution of the general male population of those 
ages, so chosen that 1,000 deaths would result at the general rates 
prevailing at each age group, if the rates for accident and for all causes 
at each ten-year age period in the occupation in question were applied 
to the standard population. Cf. ib. xi and xii. The occupational 
mortality figure is not always a sure index of mortality incident 
upon and connected with the occupation. A low mortality rate may 
indicate simply that only selected healthy individuals remain in the 
trade; a low figure may mean that many oi less than average vitality 
are forced into the occupation. See comment, ib, xvii. Such se- 
lection would have little influence upon comparative accident mor- 
tality figures. 



CHAPTER V 

AMOUNT AND WEIGHT OF THE BURDEN OF SOCIAI, IN5UMASJCE 



Before proceeding to an analysis of the economic 
social insurance upon industry, capital, "wages, and 
it will lend denniteness to the problem to consider itlfae 
amount and weight of the burden of social insurance w&ere 
it has already been introduced. Germany is chosen as the 
best country in which to study the industrial effects and to 
estimate the weight of the burden, because in Germany 
social insurance has been established for nearly thirty ve.i-r= 
and its effects, if it has any, should there be most clesndjy 
traceable. Social insurance, furthermore, is l i ni ng (devel- 
oped in Germany, and employers are heavily ^.ssessei t: 
meet part of the cost. 

A large proportion of the total population and practically 
all the working population are included in the scope of 
insurance. Among a total population of 64,551,000 in 
1910, 13,954,973, or 2I -6 percent, were insured a gainst- 
sickness; 24,154,000, or 374 per cent, against accident; and 
15,659,700, or 24.3 per cent, against invalidity and old age- 
Taking into account only the " occupied working po; _ i • 
tion" (erwerbstatige Arbeiterbevolkerung), including serv- 
ants, there were 82.4 per cent insured : :o; against sick- 
ness, 148.0 per cent against accident, and 95.2 per cent 
against old age and invalidir; 

The total amount expended from 1885 to 1910, inclnL-ir 
the cost of administration was, in sickness insurance. 4.617,- 

1 Manes, Soziaiversicherwng (Reicksversichema& AmgfsisUteisvermA- 
erung, Arbeitslosenversicherung)^ 63. Those insured against ai liiflrmt 
include a large part of the agricultural population which is not inc. -in 
in the "erwerbstatige Arbeiterbevolkerung. " 

74 



THE BURDEN IN GERMANY 75 

°39>97 2 marks; in accident insurance, 2,174,186,549 marks; 
and in invalidity insurance, 2,295,341,423 marks. In the 
year 1910 the total sums expended were 379,410,138 marks 
for sickness, 206,223,179 marks for accident and 218,945,258 
marks for invalidity insurance. Almost all of this repre- 
sents benefits received by wage earners, — 357,000,000 marks 
in sickness, 164,000,000 in accident, and 197,000,000 in 
invalidity benefits. A total yearly sum of nearly $180,000,- 
000 is thus devoted to the welfare of sick, injured, and in- 
firm members of the working class. 1 

How much does this mean to the individuals benefited? 
Sickness benefits include, as a minimum, free medical 
attendance and sick pay equal to one half of the local wages 
of common day labor, payable for a maximum period of 
26 weeks from the fourth day of sickness, with hospital 
treatment as an alternative. The scale of benefits varies 
with the local fund. Maternity benefits equal to sick 
pay for a period of eight weeks, a funeral benefit of twenty 
times the amount of the basal daily wage, a family benefit 
in case of sickness of members of the family of an insured 
workingman, and other benefits, may be granted. 2 

In 1 9 10 there were 5,705,429 cases of sickness involving 
inability to work, with 113,459,544 days of sickness; the 
cost per case amounted to 62.65 marks ($15.66); or 3.15 
marks (78 cents) per day. Per 100 persons insured, 40.88 cases 
of sickness occurred in 1910, lasting 813.04 days, an average 
of eight days of sickness per insured workman per year. 3 

Accident benefits commence after the first thirteen weeks 
of sickness due to injury have passed. In this initial period 
the cost is met mainly by the sickness funds. Beginning with 
the fifth week the sum which an injured person receives is 
equal to two thirds of the wages adopted for calculating 
benefits. An employee totally disabled receives a pension 

1 Manes, Sozialversicherung, 66-68. 

2 Dawson, Social Insurance, 50 et seq. 

3 Manes, Sozialversicherung, 69, 72-3. 



76 SOCIAL INSURANCE 

equal to two thirds of his yearly earnings; in case of partial 
disability, proportionately less. Above $450 only one third 
of the wages is counted in determining the yearly earnings. 
In case of complete helplessness, the pension may be in- 
creased to the full yearly wages. Funeral money equal to 
one fifteenth of the yearly earnings, with a minimum of 
§12.50 (50 marks; is paid in case of death; the widow and 
orphan children each receive a pension equal to one fifth 
of the yearly earnings of the deceased, but not exceeding 
altogether 60 per cent. The benefits under the accident 
insurance law are the most liberal. 1 

The average benefit per person injured and entitled to 
benefit amounted in 1910 to 160.51 marks ($40.13). The 
number of new accident pensioners added during the year 
was 132.064 and the total number of pensioners was 1,017,- 
570. The accident frequency, or the ratio of the number of 
new cases of persons injured and granted pensions to the 
total protected, varied from 2.4 per 1000 under 16 years to 
14.2 per 1000 for ages 60 to 70 in industry, construction, 
and seafaring (,1897). and from 2.5 to 10.3 per 1000 for the 
same age groups in agriculture and forestry (1901). 2 

The invalidity- insurance law gives pensions to persons 
over 70 who have made a certain minimum number of 
contributions each year for thirty years, with liberal tran- 
sition conditions for those over 40 years of age at the time 
the insurance went into effect. The old-age pensions vary 
from $27.50 to S57.50. depending on the wage class of the 
contributions paid. Persons who have paid contributions 
for a minimum of 500 weeks (200 weeks if the contributions 
are compulsory; . and who become invalids, receive invalidity 
pensions depending on the amount of contributions made. 3 
Some minor benefits are also allowed. Under the new law 

1 Cf. Dawson, Social Insurance, in et seq. 

5 Cf. Manes, Soziakersicherung, 69-73. 

3 Dawson, Social Insurance, 138 et seq.. 145. Cf. Kaskel-Sitzler, 

Grundriss des sozialen Yersicherungsrechis , 182 et seq. 



THE BURDEN IN GERMANY 



77 



of 191 1 invalid widows and orphan children under 15 of 
insured workmen are given a small pension. One or two 
minor benefits are also allowed. 

The average value of invalidity pensions newly granted 
was in 1910, 176.93 marks ($44.48) - 1 The total number of 
invalidity pensioners in 1910, at the beginning of the year, 
was 893,585, to which 114,679 new pensions were added; 
old-age pensions numbered 102,362 on January 1, 1910, 
and 11,612 new ones were added in the course of the year. 2 
New sick pensions to the number of 12,263 were granted in 
1910; 18,502 were current at the beginning of the year. 
New invalid pensions were created in 19 10 at the rate of 
732 per 100,000 insured, for old age pensions the rate was 
74 per 100,000, and for sick pensions 78 per ioo,ooo. 3 

The total sums contributed by employers, workmen, and 
the State are shown in the following table. 4 

The legal division of the cost varies with the kind of 
insurance. Contributions to sickness insurance are made 

TABLE I 



COST OF GERMAN SOCIAL INSURANCE, WITH SOURCE OF INCOME, 
I885-I9IO 





Contributions 
of Insured 


Contributions 
of Employers 


State 
Subsidy 


Sickness insurance 

Accident insurance 

Invalidity insurance 


1885-1910 

(In millions of 

marks) 

3,266.5 
369.8 


1885-1910 

(In millions of 

marks) 

1,481 .2 

2,395 

369.8 


1891-1910 

(In millions of 

marks) 

639.8 


Total 


3,636.3 


4,246.0 


639.8 





1 Manes, Sozialversicherung, 70. 
2 Amtliche Nachrichten, XXVII. 

3 Manes, Sozialversichering, 73. 

4 From tables, ib. 66-68. 



300 (February 1, 191 1). 



78 SOCIAL INSURANCE 

by employer and employee, the former paying one third and 
the latter two thirds. Premiums are assessed according to 
the wage class in which the insured person belongs: the 
amount of the premium may not exceed a maximum per- 
centage of the wages; the rate of assessment varies for 
different funds, for different average wages, with average 
state of health, and especially with the scale of benefits 
granted. 

The cost of invalidity and old-age insurance is met by the 
employer and employee, each paying an equal share. The 
State contributes in addition the sum of fifty marks per 
year to each pension. The cost of accident insurance 
varies with the degree of danger of the industry, each trade 
having its own accident fund, the cost being assessed on 
the mutual principle. It is borne entirely by the employer. 

W. H. Dawson estimates that an average contribution for 
sickness insurance is 3.5 per cent of the wage. Of this the 
employer pays one third, or 1.17 per cent of the wage. 
Contributions to invalidity insurance prior to the changes 
introduced in 191 1 constituted between .5 per cent and 1.5 
per cent of the wages, depending on the ratio of the fixed 
premium for each wage class to the actual wage received. 
The ratio is somewhat higher in the case of unskilled or 
low-paid labor, perhaps from .75 to 1.5 per cent, while for 
skilled labor the ratio may be as low as .5 per cent. Under 
the new law giving pensions to survivors, the cost will be 
somewhat increased. The average cost of accident insur- 
ance for industries of all kinds in 1909 was equal to about 
1.72 per cent of wages paid. For the mining industry in 
that year it was 2.94 per cent. 1 

That part of the total cost of social insurance for working- 
men which falls upon the employer varies between 2 and 
5.5 per cent of his wage costs, with an average of perhaps 4 
per cent. It is obvious that this percentage of wages will 

1 Dawson, Social Insurance, 209—214. 



THE BURDEN IN GERMANY 



79 



not constitute the same amount of burden in all industries; 
the relation of wages to other costs is of essential importance. 

TABLE II 

INSURANCE CHARGES UPON EMPLOYERS STATED AS PER CENTS OF WAGES 1 



Industry 



Sickness Accident Invalidity Together 



Steel 

Iron and steel 

Locomotives and wagons 

Locomotives 

Machine tools 

Machinery 

Ditto 

Ditto 

Electrical engineering. . . 

Ditto 

Automobiles 

Shipbuilding 

Coal mining 

Ditto 

Chemicals 

Ditto 

Ditto 

Glass 

Paper 

Cotton spinning and weav- 
ing 

Cotton spinning 

Average 



i .04 



0.9 
1 .1 



1.1 



0.9 



1-9 



1.0 



1. 13 



1.76 



2.2 
1 .1 



0.7 
2.4 
2.6 

2.5 
0.5 



1.72 



0.60 



0.6 
0.8 



0.6 
0.7 



0.7 



0.7 



0.67 



3-4 
3-7 

4.2 

3-7 
4.0 

3-7 

31 

35 

2.6 

2. 

2. 

4 

5 

8 

2 

3 



4.0 

5.1 
4.0 

4.0 
2.2 



3.8 



1 Dawson, Social Insurance, 214. Figures are for leading industrial 
firms gathered from inquiry in 191 1. 



Figures showing the cost per workman per year are given 
for a few industries by Dawson. In 1907 the Krupp works 
paid approximately 62 marks per employee, apart from the 



80 SOCIAL INSURANCE 

large contributions made to its own pension and benefit 
funds. Other cases are shown in Table III. 1 

TABLE III 

ANNUAL COST OF INSURANCE PER EMPLOYEE 



Firm 



Annual Contribution 
per Employee 



Nuremberg- Augsburg Machine Works . . 

Vulcan Shipbuilding Co 

Kolner Bergwerksverein of Altessen 

Bergbaugesellschaft Xeuessen of Altessen , 



(nearly) 37 marks 
48 
121 
123 



The association of Colliery and Smelting Works Owners 
of Upper Silesia reported (in 191 1) a cost per man for the 
year 1909 of 14940 marks, of which accident insurance 
took 35.37, sickness, 98.29, and invalidity, 15.04. 2 This is 
much higher than for most industries, amounting as it does 
to 12 per cent of the wages bill. 

The sums paid have tended to increase as the benefits 
have been extended and as the wages have risen. Figures 
for the Rheinische Stahl Industrie illustrate this tendency; 
and figures for the Harburg India Rubber Company, which 
employs largely unskilled labor, indicate that the cost has 
not increased to the same extent for lower paid workers. 

1 Cf. Dawson, Social Insurance, 214-217. 

2 The error is Dawson's, who gives the sums in pounds sterling; the 
figures above are expressed in marks at the rate of 20 marks to a pound. 



THE BURDEN IN GERMANY 



81 



TABLE IV 

COMPARATIVE STATEMENT OF CONTRIBUTIONS PAID ON ACCOUNT OF THE 
THREE SYSTEMS OF INSURANCE BY THE RHEINISCH STAHL INDUSTRIE 
OF REMSCHEID 1 





Sickness 


Accident 






Together 


Year 


Invalidity 


Per 
Head 


Per Cent 
of Wages 




(Marks) 


(Marks) 


(Marks) 


(Marks) 


(Marks) 


I88 5 2 


8.70 






8.70 


0.81 


1886 3 


8.75 


4-65 




13.40 


1 .22 


189I 4 


923 


13. II 


8-59 


30.93 


2-55 


1895 


9.62 


13-55 


8 


50 


3I.67 


2.61 


19OO 


IO.IO 


1305 


8 


50 


31.65 


2.21 


1905 


10.28 


28.41 


8 


23 


46.92 


3.08 


I906 


15. 40 5 


2519 


8 


9i 


49-50 


3-15 


1907 


12.87 


25.28 


10 


02 


48.17 


2.91 


1908 


17. 03 5 


28.69 


9 


77 


55-49 


3-39 



1 Dawson, Social Insurance, 218. 

2 Introduction of sickness insurance. 

3 Introduction of accident insurance. 
6 Introduction of infirmity insurance. 
6 Including special contributions. 

" During this period the average earnings of the work-people increased 
from 1080 marks in 1885 to 1655 marks in 1907, falling in 1908 to 
1 633 1 marks, but rising again in 1909 to 1658 marks." 



f-- 



7 A.ELI V 



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Kolner Bexgwcsisveroni of A3fcessem 

Arenberg Mining and fwniw a teiwwfe Co. of Essea . 
DaMbasck Coflfay Co. 



H.SSi.re: ^:i.li7 7f::'T7'" 77 A-_- 



: 

:i 

3-3 
6 



214-216- 



THE BURDEN IN GERMANY 83 

A comparison of the burden of insurance in its various 
forms, but including also the cost of voluntary benefits 
and welfare work, to the share capital and to the dividends 
paid is shown in a report of the Hansa Bund for 304 large 
companies. In 1909 it amounted on the average to 2.14 
per cent of the share capital and to 23.37 P er cent of the 
dividends. The figures for percentage of capital are con- 
siderably lower than those given above, reported by Dawson. 
The report of the Hansa Bund also compares the payments 
for insurance with the payments made by the industries to 
state, city, and empire in taxes. The latter amounted in 
1909 to 1.36 per cent of the capital and to 14.8 per cent of 
the dividends. 1 An investigation by F. Lenz of the ex- 
penses of the Gelsenkirchen Bergwerksaktiengesellschaft 
came to similar results. The insurance payments are about 
one and one half times as great as all taxes levied upon 
industry. 2 

The proportion of premiums paid to the value of the 
output is obtainable only for a few cases, though this rela- 
tion is of most importance in arriving at a conclusion as to 
the possible shift of the burden to the consumer. The 
Dahlbusch Colliery Co., of Essen, paid insurance contri- 
butions of 441,260 marks on an output of 1,059,000 tons of 
coal in 1909, an average of 42 pf. (10 J cents) per ton. 
The Essener Steinkohlenbergwerk Aktiengesellschaft, with 
an output of 1,814,906 tons of coal, paid for insurance 
1,635,800 marks, or 90 pf. (22 cents) per ton. The Berg- 
baugesellschaft Neuessen paid 40 pf. (10 cents) per ton of 
output. The Association of Colliery and Smelting Works 
Owners of Upper Silesia paid, on account of workmen's 

1 Denkschrift des Hansa Bundes. Die offentlich-rechtlichen Belastungen 
von Gewerbe, Handel und Industrie, 8 (1912). Cf. note, infra, 92. 
Cf. Zahn, Belastung durch die deutsche Arbeiterversickerung, in Zeitschrift 
fur die gesamie Versicherungs-Wissenschaft, XII. 1144. 

2 Lenz, Zur Frage der sozialen Belastung unserer Industrie, in Schmoller's 
Jahrbuch fiir Gesetzgebung, Verwaltung und Volkswirtschaft im Deutschen 
Reich, XXXV. 1129-1142, 1135 (191 1). 



'-- 



THE BURDEN IN GERMANY 



85 



TABLE VII 

COMPARISON OF EXPENDITURE FOR WORKMEN'S INSURANCE TO SELLING 
VALUE OF PRODUCT 1 



Kind of Business 



Per cents that Contributions make of 
Selling Value of Product 



Machine works 

Machine tool company 

Brewery 

Machine factory 

Portland cement works 

Cotton spinning and weaving 
mill 

Mine and smelting works 

Large-machine factory 

Cotton spinning mill 

Mechanical cotton spinning and 
weaving mill 

Dairy 

Gas engine works 

Spinning mill 

Powder mill 

Chocolate factory 

Writing and accounting mate- 
rials 

Mining association 

Mining association 

Large-machine factory 

Manufacture of explosives 

Large-machine factory 



1900 
0.92 
1.8 

0.8 
0.6 



0.6 
0.61 
0.71 
0.25 

0.4 

0.67 
0.52 
0.58 
0.48 

o.33 
1.50 
1.48 

o.33 
0.42 
0.83 



1905 
0.87 
0.8 
0.7 
1 .2 
1 .1 

o.e 
0.83 
1.30 
033 

0.5 

0.99 
0.52 

0.57 
0.63 

0.41 
2.75 
2.53 
0.90 
0.68 
1. 14 



1910 

0.98 

1 .1 

0.7 

1.05 

0.9 

0.7 

i-45 
1 .29 

0-34 
0.7 

0.78 
0.74 

039 
0.65 

0-45 
2.51 
2.41 

o.75 
0.76 

1-25 



1912 
0.87 
1 .1 
0.6 

0-93 
0.9 

0.7 

1.38 
1. 18 
0.32 

0.6 

0.41 

0.72 

0.79 

o.34 

o.75 

0.44 
2.21 
2.06 
0.79 
0.62 
1 .10 



1 Branchart, Zur Frage der Belastung der deutschen Industrie durch die 
Arbeiterversicherung, in Zeitschrift fur die gesamte Versicherungs-Wissen- 
schaft, XIV. 478. 

history of the discussion on the subject and to present the 
conclusions reached by those best informed on the situation. 
The discussion will necessarily include a treatment of some 
of the theoretical difficulties and will form an appropriate 
introduction to the general theoretical problems of the 
following chapter. 



hi 



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Lzszrizze : p>e: :ez: :■: zze ~\zpe z:s: — iz =11 =7 :e: :ez:. 
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e^ e 5 He : : _zz zzii Lz zze zzz; zrliy :•:" uses zz:= z::ezre Lz 
zze: ~z z.z zz: :e s-zzziez: 1: zze:: prize 11 ill. Iz zzizil 
prizrize 1: is :ze: :: zzzze up zzz :y Lzzpzzveziezii iz z: T :z- 
: :s ez: :ezizzzzze z: pzz-zzzrlzz zy zzezzi :: ~z::z ezeezsee 
:ez :- lz~ erezi. Tze Lzizzzzzzizz ::' = ::izl zzeziizze ~zs 
simply a spur to the discovery of new methods, elimination 
::' T-riiie zzz :::.;:: zzzezzs iz pr: : .zz :z He zzzezz :z 
:z lizze :■: = zzzrlzzzzs :z::ezsr :: -• zzes ::: 15 yezre :lie 
expzzsizz ::' zzizeiry ::.: ziie izireise :: exp-zrze — ~,zzizz 
could hardly have taken place had the cost of insurance 
przvec z burden — 1: :ez: zz: zzese ::z:l_si:zs A 
z:.:: :: e::z:zz: e ::: zzei:z i= zze zzze: livzzible ilzze :: 
introduce such reforms, but Greissl dunks that ever, if 
: ; ;. : z izze zid :eez _z:e :re:le zzz zze zzirkei zepzeeeez 
irsurizze -vzuld Live zzzsrliuiez z: reel burden upon 
German industry. 

l:s:e ::' rzuiruzlzzrurlzr e :z:z: iizzz: z-e eszlzziie-z 
z»e::rezizz ~lzz izy zepre^ ::' renzizr.-. Prizes ezz :ize 
zzz.izy :: rz~ zzi:e:.s..s :z :ze :ee:-:re~zzp zzz Zriry ::: 
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:: :: z: z:z Lz :ize ::s: :■: z::z :z:z :ver z sezes :•: 

xx::: 5 = 5—1:- f-: 



THE BURDEN IN GERMANY 87 

years. Over against these variations an item of only I per 
cent of the price is insignificant. With regard to the fear 
of foreign competition Greissl urges that the argument 
assumes either that prices will rise and home producers will 
be eliminated, or that profits will fall and they will stop work. 
The amount of the burden is so small that it can have prac- 
tically no effect upon prices, and any manufacturer who pro- 
duces for the foreign market must have a profit in expecta- 
tion so much in excess of this amount that it would make 
little difference if it did reduce profits. The latter alter- 
native, moreover, presupposes that it will be impossible to 
make up the amount in other ways. Finally, the export 
trade utilizes only a small part of total production, employing 
at most not over 15 per cent of the insured workmen, and, 
with the exception of the sugar industry, the burden result- 
ing from accident insurance in exporting industries is con- 
siderably lower than the average. In the home market all 
domestic producers are similarly situated and at most the 
insurance could only result in an increase in prices. 

In answer to the objection that though costs may have 
been decreased by improvements in production these im- 
provements would have taken place anyway and would have 
meant an increase in profits, Greissl urges that it would not 
be fair to conclude that the cost really comes out of the 
profits of the enterpriser, because such an increase of profits 
would be only temporary and would quickly be reduced to 
the normal level by competition. 

Greissl's study is one of the best that has been made. As 
to the actual amount of the cost of social insurance there is 
no controversy. Writer after writer appeals to the fact 
of the expansion of industry and the increase of wages to 
substantiate the conclusion that the payments do not handi- 
cap the German producer. It may be quite true that a 
cost item of only 1 per cent of the price is, in view of the 
variability of the other factors, of no special consequence in 
any one year; but it is not clear that, as Greissl assumes, a I 



88 SOCIAL INSURANCE 

per cent increase of cost, as a regularly recurring item, would 
not make a substantial difference over a period of years. 
He emphasizes the advantage (from the point of view of 
the workers) in the specification by law of the minimum 
benefits which the employers and the different funds have 
to grant. Otherwise, he says, in case of business depression 
there might be danger that the benefits would be curtailed 
and the workers suffer. But he overlooks the possibility 
that wages may be reduced as a factor in cost or that wages 
may now not be so high as they would have been if no social 
insurance had been introduced. 

Professor Friedrich Zahn, in his excellent description of 
German Workingmen's Insurance written for the Paris Ex- 
position in 1900, 1 treated of the effect of the institution 
upon industry. He points to the fact that it is not in every 
case a new pecuniary burden, for many employers had 
made provision for employees before. As against other 
factors affecting business, the burden of social insurance has 
been negligible. In fact, he argues, the other factors, — 
prices, quality and cost of raw materials, wages, freight 
rates, changes in the market for capital, exchange, and tariff 
policies, — have been so favorable on the whole that a great 
expansion of German trade has taken place. The export 
industries have not suffered. The new burden has been a 
partial cause of the improvement in the technique of indus- 
try. In any case, he thinks, there can be no talk of a 
shifting of the burden on to the workers, whose wages have 
in general risen greatly, nor has the burden been shifted, 
through an increase of prices, to consumers. There may, 
however, have been a slight shifting of production from the 
factories to domestic industry in certain lines, owing to the 
exemption of the latter at first from the payment of insur- 
ance premiums. 

Paul Steller takes the position that the employers are 

1 Lass and Zahn, EimricUamg und Wirhmmg der irmtschen Arbeaer- 
versichenmg (1900}. 



THE BURDEN IN GERMANY 89 

seriously burdened by the expenditure for social insurance 
and public taxes. This view he proceeds to support by 
showing the relation of the "public burdens" to dividends 
paid. In some cases, according to the published reports 
of stock companies, they are equal to 60 per cent or more. 
In the case of one mining company a serious reduction in 
dividends is attributed by Steller to the weight of the public 
burdens. 1 

Professor Herkner criticizes the term "public burdens" 
as used by Steller. It seems to have included state and 
local taxes, contributions to the chambers of commerce, 
insurance premiums, and voluntary contributions to welfare 
work. He makes the further point that it is misleading and 
unwarrantable to compare the "burdens" with dividends 
paid, for these last do not necessarily correspond to net 
income but may depend rather upon the dividend-paying 
policy. Dividends would not have been higher in the 
absence of contributions, because of the action of competi- 
tion in reducing profits to an average level. 2 Professor 
Herkner urges that companies in the export industries, — 
the chemical, coal and iron, and textile industries, for ex- 
ample, — have paid rather higher dividends than the average 
for all stock companies. 3 Further, there are compensating 

1 Professor Herkner shows it was due to special conditions affecting 
the business. Die sozialen Lasten der deutschen Industrie in neuer 
Beleuchtung, in Preussische Jahrbiicher, CXLIV. 109-10 (191 1). 

Articles by Steller: 

Das Uebermass der offentlichen Lasten der Industrie in Deutschland. 
(Koln, 1910). 

Erhohung der Gestehungskosten der deutschen Industrie durch die so- 
zialen Lasten. Eine Antwort an Herrn Prof. Dr. H. Herkner. (Koln, 
1911). 

Das Unternehmertum und die offentlichen Zustdnde in Deutschland. 
Eine Zeitbetrachtung. (Berlin, 191 1). 

2 Herkner, Die offentlichen Lasten, in Preussische Jahrbiicher, CXLII. 
539-43 (1910). 

3 Herkner, Die Belastung der Industrie im In- und Auslande, in Preus- 
sische Jahrbiicher, CXLIII. 167 (191 1). 



z_:zz~.z . z. z _:-:- :z:rizn .z. z_zzr In England the poor 

late is extremely heavy, and the recent increase in taxes 

::: z:z.z. z .. r;::Z-s ..-.:... z.r.zz zne pensioning of the aged 

i~ z :hr z-rz iz ..5~znz- r.z ::' the new social insurance, mote 

::.:: z-z_z...zir rz.z.zzz-:s In A_~z-~zn — -igrs irr rrz:zzr.z. 

higjici to compensate far tfee burden of social insurance in 

Germany With reference to the alleged emigration of 

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.z~5 zzt rzrz- .ZZ.Z-: rz.inz zz :':; :es inducing enterprisers to 

Z-.-Z :zzz:z.zz zz::.zz Tzz =o::al "burdens" are a minor 

— azner : In sn : ~ z zz expert industry of Germany is not 

■iffi linj, z he z mm z : : t:5 for the home market are all 

burdened alike and tfoey can secure the extra cost from the 

::z.z_zz.z: Tzzrz is zz.zzz-:::z- - : zz : . z z ::: zz_z- :laim znzzz 



ligaments suggest the compiexzz^ 
'.: ill nze izzferrnz: conditions of pro- 
■triei — fifie rences in wages, dirrer- 
s incidence, differences in other costs, 
consideration, it is quite clear that 
very definite statistical answer to the 
:al purposes the establishment of 
e consequent increase of the burden 
: justified, if at all r by actual results. 

aniens are not a decisive industrial 
siiinilriH insurance exists abroad or 
iher compensating costs. German 
.; -nndicapped in foreign trade, and 
the home market all the producers 
ce. His statement that the higher 
i» where there is no social insurance. 



LiumSwg to Sh milwi II, would 
161 to 169^ Hnrfcanr, Use 



:: :-: 



THE BURDEN IN GERMANY 9 1 

are a compensating factor, suggests the possibility that 
insurance costs in Germany may really have been shifted 
to the workers. 1 

An excellent monographic study was published in 191 1 
by Friedrich Lenz. 2 It analyzes the expenses and income 
of a coal mining company, the Gelsenkirchen Bergwerks- 
Aktien-Gesellschaft, which employed on an average, in 
1905 to 1909, 46,000 workmen. By a careful study of the 
special conditions under which this particular firm operated, 
of the variations and growth of the amounts paid for social 
insurance and for taxes, of variations in market conditions, 
of the growth of business, of changes in wage rates, in gross 
and net income, in dividends paid, capital invested, etc., 
the conclusion is reached that the ratio of the social burden 
to "gross income," i.e. income before operating costs, 
taxes, insurance contributions, and depreciation have been 
deducted, expresses most fairly the weight of the burden. 3 
For the particular company under consideration the pay- 
ments for social insurance plus taxes equalled two tenths of 
the "gross income" and three tenths of the charges deducted 
from it. The amounts required for insurance have in- 
creased much faster than the "gross income." He finds, 
however, no special effect on dividends traceable to the 
imposition of these payments. 4 

1 "Man kann es, wie es in Nord-Amerika der Fall ist, den Arbeitern 
iiberlassen, selbst fur ihre Versicherung zu sorgen und bei Unfallen 
Haftpflichtklagen gegen ihre Arbeitgeber anzustrengen. Unter diesen 
Voraussetzungen miissen die Arbeiter hohere Lohne beziehen. Dass 
sie tatsachlich in Amerika unverhaltnismassig hoher sind, ist zur Geniige 
bekannt. " Herkner, Die offentlichen Lasten, in Preussische Jahrbiicher, 
CXLII, 541 (1910). 

2 Lenz, Zur Frage, in Schmoller's Jahrbuch, XXV. 1129-1142. 

3 lb. 1 140. It may also be compared to total expenses — operating 
costs, taxes, insurance contributions, and depreciation — or to the value 
of product. 

4 Lenz summarizes his arguments in the following words: "While 
therefore the increase of the social burden shows no perceptible con- 
nection with the amount of dividends declared, we see by closer exam- 



92 SOCIAL INSURANCE 

In 1912 the Hansa Bund published figures for 304 stock 
companies showing the amount and relation of insurance 
payments and taxes to dividends declared, for the ten years 
1 900-1 909. l For the last year the insurance premiums 
were equal in amount to one fifth of the dividends, having 
increased from about 14 per cent in 1900. In two or three 
industries, especially in the mining industry, the average 
was over 50 per cent of the dividends. Compared with all 
taxes paid by these companies, the contributions for insur- 
ance were nearly half as large again. In view of the state- 
ment of Professor Herkner that the stock companies are 
more heavily burdened with taxes than other forms of 
industrial enterprise, 2 the relation of insurance to taxes may 
be somewhat lower than the average. The comparison 

ination that it is the economic conditions and the temporary state of the 
market at the time which influences now as formerly the increase and 
decrease of the rate of profit. . . . The excess of value per ton 
rises and falls corresponding to the selling price received, while the 
"weight" of the social burdens in spite of its absolute increase falls in 
time of prosperity and increasing surpluses, but rises in times of depres- 
sion and weakening selling prices." lb. 318. 

1 Die offentlich-rechtlichen Belastungen. (1912). Jiingst criticizes 
this report on the ground that it leaves it an open question whether 
or not the contributions of the employees as well as those of the 
employers are included. Jiingst himself proceeds to include them and 
treats the two together as the "burden." The introduction to the 
Hansa Bund's report runs as follows: "In den folgenden Tabellen sind 
fiir die einzelnen grosseren Wirtschaftsgruppen die staatlichen, Gem- 
einde- und sonstigen Abgaben sowie die Beitrage zur Sozialversicherung 
in absoluten Zahlen. . . ." This would naturally mean the con- 
tributions of employers to the three forms of insurance; if it included 
those of the workers too the title of the report would be a mis- 
nomer. The study of F. Lenz gives for a large coal mine a ratio of 
employers' contributions to insurance to the tax payments of 2 to 1 for 
1909; 1907 1 1 to 1. The ratio of contributions of both employers and 
employees to taxes in 1909 was o.\ to 1 (1907: estimated 3^ to 1). The 
Hansa Bund figures the average contributions for the mining industry 
as nearly three times as great as the tax burden. 

2 Herkner, Die offentlichen Lasten, in Preussische Jahrbiicher, CXLII. 
540. 



THE BURDEN IN GERMANY 93 

may be misleading in this respect : a large part of the taxes 
are levied on net income and according to accepted theory 
cannot be shifted; the insurance payments are levied with 
the expectation that they will not be borne by the enter- 
prisers themselves. 

W. H. Dawson treats of the costs of insurance in one 
chapter of his excellent description of German working- 
men's insurance. 1 He concludes from the facts of great 
expansion of industry, increase of wages — in comparison to 
which the increase of insurance premiums is insignificant — 
and from the extension of insurance, that the system is not 
a handicap upon German industry. He quotes from a 
speech of E. Schmidt, a representative of the tobacco trade: 

In any event, it is certain that it is hardly possible to speak of these 
insurance contributions as constituting any special burden on industry, 
for if you regard the sum so paid, not as a percentage of wages, but of 
the year's turnover, it does not exceed 3 per cent., so that in calculating 
the cost of goods that is the extent of the expense to be allowed for. 
That is so small a sum that it is neither right nor just to make a noise 
about it, and pretend that we can no longer pay it if our workpeople are 
to have increased benefits by new insurance legislation. Speaking 
honestly, as one employer to another, I am of opinion that the invest- 
ment in these insurance contributions is not a bad one. 2 

Professor Zahn, writing in 1912, emphasizes the same 
points. He appeals to the flourishing condition of German 
industry, to the additional voluntary expenditures of em- 
ployers for pension systems and welfare work, and to the 
great increase in the wages of workmen for proof that Ger- 
man producers have been able easily to bear the burden of 
social insurance. He places against the outlay on the part 
of employers the direct and indirect benefits resulting from 
insurance, and holds that the betterment in the health of 
workingmen and in their attitude toward their work have, 
by increasing their productivity, contributed no little 

1 Dawson, Social Insurance. 

2 lb. 235. 



94 SOCIAL INSURANCE 

toward making possible the expansion of German industry. 1 
E. Jiingst has furnished a few details about the burdens 
upon the anthracite coal mining industry. Here it is no 
new burden, having been imposed as early as 1857. The 
cost has grown greatly, however, in the last few years. 2 

In a contribution to the Preussische Jahrbucher in 1 9 13, 
Lenz comes to the conclusion that there is really no doubt 
with reference to the general ability of German industry to 
hold its own with foreign competition. The advisability 
of social insurance is no longer an open question. But the 
individual establishment and the individual industry may 
suffer. In this case the question is not that of the abolition 
of social insurance in general, but merely that of methods of 
lightening the weight of the burden for the particular 
industry. 3 

A detailed investigation made in 19 13 by the same writer, 
into the effect of the burden of social insurance and taxes 
upon the profitableness of the Schultheiss Brewery, is 
especially interesting because of the unusual ratio of insur- 
ance to taxes, and because of the very great increase in the 
weight of the latter since the tax reforms of 1906 and 1909. 
The proportions which social insurance contributions plus 
taxes bear to total expenditures and to gross income are 
shown in Table VIII. For the first period, from 1870-75 
to 1901-05, the "public burdens" formed a constantly 
decreasing per cent of expenses and of gross income. Yet, 

1 Zahn, Belastung durch die deutsche Arbeiterver sicherun g, in ZeiU 
schrift fur die gesamte Verskherungs-Wissenschaft,Xll. 1126-1160 (1912). 

5 Jiingst, Die Leistnngen d.es Ruhrbergbaues, in Gluckauf., XLIX, 249— 
256; 292-297: 327-337 (1913). Curiously enough, he compares the 
amount of ''social contributions," including payments of -workers as 
well as of employers, with the value of product, as though the 
employers had to pay the contributions of the workmen as well as 
their own. 

s Lenz, Sozialpolitik und Unternehmertum : Zugleich ein Beitrag sum 
Methodenstreit in d-er Privatwirtschaftslehre, in Preussische Jahrbucher, 
CLII. 313-322, especially 3I4~3I5- 



THE BURDEN IN GERMANY 95 

in spite of the decline of the burden during the first three 
five-year periods, there is no effect shown on the dividends. 
The present level of dividends was reached in 1886-90 at 
a single leap, though the effect of the extension of com- 
pulsory social insurance commences for this period. Since 
1906 the proportion of taxes plus insurance contributions 
to the total expenditure and gross income has doubled 
and nearly tripled, yet it seems to have had little or 
no effect upon dividends. Social insurance contributions 
were 5.6 per cent of the sum of insurance plus taxes in 
1881-90. They rose to a maximum percentage of 10.6 
in 1901-05 ; sinking after the taxes levied directly upon beer 
were raised (though the proportion of social insurance con- 
tributions to wages had itself increased) to 6.7 per cent in 
1906-08 and to 3.5 per cent in 1909-11. The brewing 
industry has adjusted itself to a special increase of taxation 
without appreciable change in its ability to pay dividends. 
And this increase was so heavy as to make the weight of 
the burden of social insurance seem insignificant in com- 
parison. Besides the compulsory social insurance contri- 
butions, fairly large sums are expended voluntarily for the 
welfare of the working men. 1 

1 Lenz, Die soziale Geschichte des Schultheiss-Brauerei, in Archiv fur 
Sozialwissenschaft und Sozialpolitik, XXXVII. 175-214 (1913). He 
summarizes the results of his study as follows: " We may summarize as 
the final result of the second period: first, that the two increases of the 
tax on beer brought a temporary diminution of profit, but no shrinking 
of the basis of existence of the industry; and that the rate of profit was 
influenced primarily by market conditions, weather, and wages, and only 
in secondary degree by the special social legislation; the economic and 
natural factors have shown themselves more important than the social 
factors in this exceptional case. Secondly, the amounts paid for public 
purposes in the brewing industry show a tendency to fall when the tax- 
rate remains the same. lb. 198. 



9 6 



SOCIAL INSURANCE 



RELATIVE WEIGHT OF 



TABLE VIII 

'public burdens,' 
I870-I9I2 1 



SCHULTHEISS BRAUEREI, 





" Public Burdens " in Percentage of 


Period 


Total 
Expenditure 


Gross 
Income 


Average 
Dividend 


1870-75 


334 


19.0 


8.8 


1876-80 


24.8 


16.O 


9.0 


1881-85 


25.3 


18-5 


8.8 


1886-90 


22.2 


15-7 


14.8 


1891-95 


16.0 


12.7 


14.6 


1896-OO 


16. 1 


13-2 


15.0 


I9OI-05 


15-4 


12.8 


15-4 


1906-07 


24-3 


20.7 


17.0 


1907-08 


23.0 


20.3 


14.0 


1908-O9 


23-7 


20.4 


14.0 


I909-IO 


35-0 


30.8 


14.0 


I9IO-II 


35.1 


313 


15.0 


I9II-I2 


34-8 


31.2 


15-0 



x Ib. 192, 197. 



TABLE IX 



RELATIVE IMPORTANCE OF SOCIAL INSURANCE AND TAXES, 
SCHULTHEISS BRAUEREI I87O-I9II 2 





Percentage of "Public Burdens" represented by- 


Period 








Social Insurance 


Taxes 


1870 


0-5 


99-5 


1871-75 


1.2 


98.8 


1876-80 


2.6 


97-4 


1881-90 


5-6 


944 


1891-95 


7-7 


92.3 


1896-OO 


7-5 


92.5 


19OI-O5 


10.6 


89.4 


1906-08 


6.7 


93-3 


I 909-I I 


3-5 


96.5 



2 lb. 200. 



THE BURDEN IN GERMANY 97 

Three papers by Potthof deserve mention. 1 Potthof 's 
viewpoint is in general like that of Professor Zahn, but he 
puts more stress on the positive advantages of insurance. 
He finds that the workmen have received in benefits much 
more than they have paid in contributions, so that there 
cannot be any serious talk of ''burden" here. The em- 
ployers have received some return in the betterment of the 
health and the good will of their workers. The burden on 
the state has been partly offset by diminution in the cost of 
poor relief. 2 In many cases the employers have probably 
shifted the cost to consumers by a slight increase in price. 
The total increase in price is not equal, however, to the 
total amount of contributions paid by employers. The 
purchasing power of the working class has been diminished 
by the amount of the premiums, but this is more than offset 
by the amount received in pensions. Accumulation of 
capital in invalidity insurance has resulted in loans to 
building associations, hospitals, employment bureaus, and 
all sorts of welfare work to the advantage of workmen. 
Insurance has been a great step toward an economy of the 
human factor in production. From the national point of 
view it is worth much more than it has cost. Here social 
measures of cost are introduced in the discussion of the 
economic weight of the burden. 

Finally Branchart has reviewed the whole question once 
more. 3 He first considers the argument that the increase in 
the relative number of cases where the compulsory collec- 

1 Potthof, Wer trdgt die Kosten der sozialen Versicherung? in Schriften 
der Vereins fur Sozialpolitik, CXXXVII. Pt. 4, 281-288, (1913). 

Kernfrage sozialer Versicherung, in Ekrenzweig's Assekuranz-Jahrbuch, 

xxxiv. Pt. 2, 75-89 (1913). 

Die Kosten der sozialen Versicherung und ihre Ueberwdlzung, in Suess's 
(Ehrenzweig' s) Assekuranz-Jahrbuch, XXXV. Pt. 2, 98-119 (1914). 

2 Zahn treats of the effect of insurance upon workmen's budgets, and 
upon the state. 

3 Branchart, Zur Frage der Belastung, in Zeitschrift fur die gesamte 
Versicherungs-Wissenschaft, XIV, 475-492 (191 4). 



98 SOCIAL INSURANCE 

tion of accident insurance assessments is necessary shows 
that the burden is growing too heavy for industry to bear. 
Investigation of this question in the case of several accident 
insurance funds, especially in the building trades, shows 
that there is no marked increase in the proportion of such 
cases but merely an irregular variation. The proportion 
of cases where resort is had to legal process for collection is 
not of itself significant; the proportion of cases of actual 
default or inability to pay is the true index. This is very 
low. Branchart cites, for example, the case of the Nord- 
ostliche Baugewerks-Berufsgenossenschaft where trade con- 
ditions were extremely unfavorable. For 55.5 per cent 
of all assessments suit had to be begun to compel payment, 
but only in 1.98 per cent of all cases was there inability to 
pay. According to Branchart, the cause of delay is to be 
found chiefly in the ''indifference, forgetfulness, especially 
in the negligence (Nachlassigkeit) of the members." 1 
Stringency in the money market, which affected adversely 
the majority of the smaller companies, and the desire on 
the part of the larger establishment to have the use of the 
money led in not a few cases to an open procrastination of 
payment till the last possible moment, the costs of process 
laid on delinquents being small. In many cases of default 
in payment of assessments the inability to pay was due to 
the ordinary causes of business failure and could not prop- 
erly be ascribed to the weight of social insurance. 

Branchart again emphasizes the point that the advantages 
of social insurance must be offset against its cost. He is 
of the opinion, in common with most other writers on the 
subject, that no satisfactory and complete statistical answer 
to the question is possible, and is inclined to place the burden 
of proof, involving the necessity of bringing statistical evi- 
dence in support of the claim that industry is overburdened, 
upon the employers. 

The question of a possible loss of competitive power in 

1 Branchart, Zur Frage der Belastung, 476. 



THE BURDEN IN GERMANY 99 

foreign markets is answered by an appeal to the statistics 
of export of the principal nations, showing that Germany's 
share in the world export trade rose from 10.3 per cent in 
1885 to 12.5 per cent in 191 1, while England's percentage 
share declined, France's declined, and that of the United 
States increased but little. 

The old argument is once more reiterated that the tre- 
mendous growth of German industry is coincident with the 
enactment of social insurance laws, and a causal connection 
is sought in the necessity imposed by the new burdens of 
hastening improvements in technique, greater use of capital, 
and more profitable use of labor. 

Finally, figures are produced to throw light on the question 
of decline in dividends. The conclusion is drawn that social 
insurance burdens have had no traceable influence, and 
that net profits have been and continue to be reasonable. 

From this review of the evidence, the conclusion would 
seem to be justified that social insurance has not proved a 
handicap upon German industry as a whole. Social insur- 
ance premiums are but a small and relatively unimportant 
part of the total cost of production. There is no proof 
that dividends have been generally impaired. Facts as 
to depressions in certain specific establishments or industries 
may generally be explained in terms of other causes than 
social insurance. The observed effects of levying a tax 
(several times heavier than the weight of social insurance) 
in the beer industry suggests that the possibilities of shifting 
burdens of this sort are, for some industries at least, very 
elastic. German industry as a whole has been flourishing 
and an increasing share of export trade has been taken by 
Germany. In the face of these broad facts, no other con- 
clusion can be drawn but that social insurance has not been 
a serious burden upon industry. 



CHAPTER VI 

IHZ SHIFTING PROCESS IN INDUSTRY 

What would be the effect on American industry of im- 
posing upon it a burden similar to that of the social in- 
surance of Germany? The question is one of the most 
complicated of economic problems. Opponent :: sDcial 
insurance often argue that it would injure industry, that 
it would hamper competition for foreign trade, that no 
state could possibly impose such a burden without forcing 
its capital and its enterprise to seek other fields more pre fit- 
able. 

In what sense is it permissible to speak of a "burden" 
upon industry? The arguments of those employers who 
oppose the introduction of social insurance usually go no 
further than to point out the sums that they will have t : 
pay in the first instance. But if the amount is received 
back in increased price, or is made up by savings in other 
costs, it is clearly allowable to speak of a "burde:; inly 
as it is measured by the difficulties and pains ;: the shirting 
process. If wages are reduced by the amount of the 
employers' insurance contributions, it is clear that the 
employers suffer nothing. Only if enterprisers are forced 
out of business by a reduction or elimination of profits, 
if enterprisers emigrate to more favorable localities, if 
there is a falling off of investment within the state, is it 
proper to speak of industry as "burdened." 

It will be necessary therefore to answer three main 
questions: (i) What proportion of the cost can be met 
by shifting the burden to the consumer in higher prices. 
or by savings in the cost of the productive process? (2 Tc 
what extent will an emigration of capital and enterprise 
take place? Will there be an increased amoun: : : : usiness 

100 



THE SHIFTING PROCESS IN INDUSTRY 101 

failures by reason of insurance burdens, or an avoidance 
of the state by new investors? And finally, (3) will wages 
be reduced? Logically this last question is subsidiary 
to the first ; but it is impossible to say how much wages will 
be reduced without first knowing whether industry will 
fall off in a state establishing an insurance system. Fur- 
thermore, the question of the effect on wages has of course 
a special importance of its own. 

What proportion of the cost will be shifted? Social 
insurance adds a new cost to production, practically un- 
compensated by any increase in product. Either prices 
must rise or other costs or residual elements must shrink. 
Classical economic theory teaches that an item of cost 
which is uniform for all producers tends to appear in price. 
For producers in any one line the cost of insurance, per 
unit of product, will be approximately uniform. The 
theory, however, states rather the results after the shifting 
process has been completed than the way in which the 
shift takes place. A new cost could appear in price just as 
well in connection with a decrease of wages as by an 
increase of price. 

Whether the producers will be able to raise the price 
to the consumer depends on the state of competition in the 
trade and on the nature of the demand for the commodity. 
If the demand for the product is elastic, so that the quan- 
tity demanded shrinks rapidly with an increase of price, 
a shift of the burden to the consumer will be impossible, 
and the producer will have to find some other method of 
meeting the added cost. An increase in price will be 
comparatively easy in case of a commodity for which the 
demand is inelastic. 

If an industry is subject to foreign competition, especially 
if the latter is free from such burdens, or is in a stronger 
economic position, an increase of price will be difficult. 
If the industry is secure against foreign competition, prices 



102 SOCIAL INSURANCE 

may be increased and the burden passed along more easily. 
Even if severe competition characterizes the home marker, 
an increase in price may follow if all suffer equally under 
the same burden. In any case it depends essentially on 
the ability of producers to act in concert against the con- 
sumer; in case this concerted action is possible, not even 
the existence of foreign manufacturers in the same line 
will prevent an increase of prices. To impose a similar 
burden on all producers means in most cases to increase price. 

If the position of the home industry is weak eco- 
nomically, the producer may be unable to shift the burden 
to the consumer. Compulsory contribution to social in- 
surance may give large establishments an additional 
advantage over the smaller ones ; and it may rest with the 
former whether they will raise the price to meet the added 
cost, or will prefer to expand their business, reducing the 
costs and forcing out the more inefficient producers. 

Of practical importance is the degree of ease with which 
the price can be moved. Wholesale prices are much more 
easily shifted than retail; a small shift in wholesale quo- 
tations may sometimes not appear in the final price at all, 
being absorbed by the middleman. In other cases, how- 
ever, it may give rise to a jump in the price of the final 
product out of all proportion to the insurance costs. 

Having failed to shift the burden to the consumer or to 
pass it along to the wholesaler, the producer seeks to reduce 
his costs. It is a question of the easiest way out. The 
average employer does not have control over the market 
price of his commodity; but his costs depend to some 
extend upon his progressiveness, his enterprise, and similar 
factors. The addition of the new item of cost to the 
regular costs of production may, by threatening the residual 
income of the enterpriser, spur him to make new efforts to 
reduce costs of production. If the outermost limit has not 
already been reached, he may be able to reduce the manu- 
facturing cost by introducing new machinery or new 



THE SHIFTING PROCESS IN INDUSTRY 103 

processes, by adopting more efficient methods of shop 
practice, or by eliminating waste. Scientific management 
has opened a new view of possible achievement in the 
direction of reduction of costs. 

New improvements are made, to be sure, all the time; 
and it may be argued that they might have been made or 
introduced even though social insurance had not been 
adopted. It nevertheless remains true that the extra 
cost of the latter is made up by the savings in cost of the 
former. In such a case, prices to the consumer will remain 
stationary instead of falling, or the profit to the enterpriser 
will remain what it has been instead of rising. Such a 
method of meeting the cost cannot be said to impose a serious 
burden upon industry. 1 

A more serious objection to the theory that a part of the 
cost can be made up by improvements in productive methods 
is that under conditions of competition there is noth- 
ing to prevent the foreign competitor from adopting the 
same improvements and maintaining his advantage over 
the domestic manufacturer. Under such conditions he 
might either pocket the saving derived from such improve- 
ments, or if he saw fit, he might force a reduction in price 
to the consumer corresponding to the saving in cost of 
production. But the foreign producer has no such im- 
mediate pressure placed upon him to make the improve- 
ments as has the domestic manufacturer; he will probably 
prefer to wait till the invention or the method has proved 
its worth, or till there is some immediate and compelling 
motive to rouse him out of inertia. It often happens 
that the sole advantage of an industry located in one 
section over that in another section consists in the superior- 
ity of process, better machinery, and more complete utiliza- 
tion of raw material and of the time of employees. Reduced 
to its simplest terms, this is nothing more nor less than 

1 Increases in wages are often followed by the introduction of labor, 
saving machinery, compensating the increased cost of wages by lessened 
cost of production. 



104 SOCIAL INSURANCE 

that the one section keeps ahead of the other in discovering 
and in introducing new improvements. 

To impose the burden on the section that is in the lead 
may reduce somewhat the amount of its advantage, depend- 
ing on the amount of the insurance payments required. 
In its ultimate effect the advantage may not be reduced at 
all. To impose the burden on the more backward section 
may not have that calamitous result that seems so obvious ; 
but it may act as a spur to the quicker adoption of newer 
and more up-to-date methods. Massachusetts adopted a 
ten-hour day for the cotton-spinning trade before any other 
of the New England States. An inquiry into the effect 
on the amount of the product showed that per man and per 
loom quite as much was produced in Massachusetts as in 
the other states with eleven-hour or twelve-hour days. 1 
The cotton mills of New England hold their own against 
the mills of the South in spite of the much more rigid laws 
relating to child labor, hours of labor, factory inspection, 
employers' liability, etc. The imposition of social insurance 
burdens in Germany has gone hand in hand with a wonderful 
development of German industry, which has been made 
possible by the modernization of her manufacturing 
methods. 

Failing to effect a saving in this way, the producer may 
be forced to shave some of those items that grow with 
prosperity and shrink with adversity. Among these may 
be counted the return ascribed to plant as rent. If the 
factory cannot easily be applied to a more productive 
purpose, the owner may have to consent to a reduction of 
the returns rather than have it standing idle. If all other 
enterprises are laboring under similar pressure this shift 
will be easier to carry through. The enterpriser's wage 
of management may be reduced; the only escape is for the 
enterpriser to seek some other more profitable application of 

1 Massachusetts, Uniform Hours of Labor, in Twelfth Annual Report 
of the Bureau of Statistics of Labor, Part III. 457 (January, 1881). 



THE SHIFTING PROCESS IN INDUSTRY 105 

his talents — an outlet which will depend on his ability and 
the opportunities available and which is rarely as easy as 
classical economics assumed. In some cases the producer 
may be able to reduce prices of raw materials, passing the 
burden backward, in case he is the only consumer, or, if all 
other consumers are in a similar plight, they may have a 
price-making position with reference to the goods or 
services in question. But here the elasticity of the items of 
cost of the raw material comes into the question as well 
as the elasticity and urgency of the demand for it. 

Finally, the producer may be able to reduce wages. 
Wages of persons more or less dependent upon him for 
employment may be reduced without much difficulty. These 
have the choice of accepting the reduction or leaving the 
employment and looking elsewhere for a job which they 
cannot find. Inefficient men and persons well along in 
years would probably suffer because their economic position 
is weak. The attitude of trade unions and their strength 
would have a considerable influence upon the reduction of 
costs in wages. In the case of an unskilled laborer who 
can everywhere find an opportunity to use his powers the 
producer would probably be unable to effect much of a 
reduction. The laborer is bound to no employer and his 
work will command about the same price anywhere. The 
mobility of labor is of importance in this connection. 
Many workmen might be willing to accept a reduction of 
pay — especially if temporary — rather than go to the 
trouble of seeking a new position and moving to a new 
town. If the insurance system is general, however, it is 
evident that the question is complicated by the possibility 
of employers everywhere acting in tacit agreement in 
their wage policy. 

In a period of prosperity and rising prices, the producer 
will probably be able to shift the cost more easily to the 
consumer. In case of need he will be able to carry it more 
easily himself out of his larger profits. Wages, which tend 



106 SOCIAL INSURANCE 

to lag behind prices in an upward movement, may not be 
advanced so rapidly. In a crisis, however, the chance of 
shifting would be much smaller, and the producer might 
have to pocket the extra burden himself. Under excep- 
tional circumstances he may do this anyway. 

The burden will fall most heavily on the economically 
weak. Large-scale producers have a much more favorable 
position that the small producers or the hand trades. 
This is illustrated by the action of large companies in 
voluntarily establishing pension systems for their own 
employees. Farmers would find it most difficult to shift 
burdens imposed on them. 1 This is on account of their lack 
of organization. 

It is impossible to predict how the cost will be met in any 
concrete case. It depends on all the conditions, of market, 
of manufacture; it depends upon the possibilities which 
exist in each industry and in each factory of making up 
for the added cost by a change in prices and a decrease 
in the expense. There can be no general answer to the 
question whether the insurance payments will be a burden to 
industry. It may be a burden in some lines under some 
conditions, or to inefficient or marginal producers. 

The proportion of the cost that can be shifted varies 
with the conditions of the industry. Where there is con- 
siderable "slack" in wholesale and retail prices, in the 
prices of raw material and in other costs, a small item of 
from one to two per cent of the wholesale price can be 
absorbed without difficulty and without affecting the 
well-being or threatening the existence of the industry. 
Where the industry labors under difficulties, the addition 
of even a small amount is a more serious matter. It would 
be especially so if imposed for the first time in hard times. 
For the great majority of industries the burden would 
probably be so slight that it would be a matter of little 
difficulty either to make it up in another way or to shift it. 

1 Farmers are included in the scope of the German accident in- 
surance. 



CHAPTER VII 

EFFECT OF INSURANCE UPON CAPITAL AND ENTERPRISE 

Under the present system of industrial organization the 
enterpriser or the employer is directly responsible for the 
conduct of industry. Capital is invested under his direc- 
tion, and he seeks and utilizes the opportunities for profit 
that appear most remunerative. Insurance places a burden 
upon the employer or enterpriser which he attempts to 
shift; but if he is unable to force others to accept the bur- 
den, he is compelled to bear it himself as the residual 
claimant. 

The effect of social insurance upon capital and enter- 
prise becomes a matter of especial importance when insur- 
ance is adopted in a single state. The possibilities of 
emigration must be taken into account. Capital can be 
invested in a neighboring state and enterprisers will move 
there, if the prospective return appears to be greater. If 
the burden of social insurance bears with any considerable 
weight upon enterprise or capital, industry within the 
state will suffer. To what extent would an emigration of 
capital or failure of enterprisers take place as a result of 
a system of insurance? 

In considering the effect on capital it will be necessary 
to distinguish between the effect on capital already in- 
vested and capital seeking new investment. Capital al- 
ready invested is relatively immobile. The value of the 
plant does not depend upon the initial investment cost, but 
on the actual and prospective returns. The effect on capi- 
tal already invested will appear only in so far as the returns 
on the property and the enterprise are curtailed, and will 
tend to show itself in a revaluation of the plant to corres- 

107 



108 SOCIAL INSURANCE 

pond with the capitalization of the return at the current 
rate of interest. 

Can such capital emigrate to avoid this contingency? 
To the owner of an establishment or factory there are two 
alternatives: to sell his plant, or to let it run down and 
abandon it. Adopting the first alternative, he secures only 
its market price, which will necessarily depend on the value 
ascribed to it by another enterpriser on the basis of its earn- 
ing capacity under the new conditions. The second alter- 
native is to hold back the replacement fund and reinvest 
it elsewhere. The amount of this replacement fund would 
have to come in the remaining years of the life of the plant 
from the income received; in case of the lessening of this 
income, it would appear that the amount of the fund and the 
practicability of withdrawing it would be affected adversely. 

The tendency to revaluation would be different for dif- 
ferent grades of fixed capital. Where the present value of 
fixed capital is considerably higher than its original cost, 
where there is a large element of "good-will" or " franchise 
value," revaluation will take place on the basis of the new 
income. The value of a railroad is in large measure inde- 
pendent of the cost of mere maintenance, and a shrinkage 
in income would mean nothing more nor less than a fall in 
value of stock. The value of patents and of the exclusive 
ownership of natural monopolies might be affected by the 
loss of income. Capital invested in a growing industry in 
which normally a certain number of factories are replaced 
every year to keep up to the demand will be valued at or 
near the cost of replacement; and here a readjustment will 
have to take some other form than a simple lessening 
either of the replacement fund or of the value of the plant. 1 

1 It may be pointed out here at the risk of repetition that it does not 
necessarily follow that there will be any serious reduction in return to 
be taken into account by the enterpriser or the owner of fixed capital. 
The additions to cost may be made up in improvements in technique, 
by savings in raw materials, and other economies. Only to the extent 
that no other outlet is available does an effect on capital have to be 
considered. 



EFFECT UPON CAPITAL AND ENTERPRISE IO9 

Capital which is invested in relatively fluid forms is in 
no such difficult position. A business not requiring any 
specialized factory and not using a large amount of fixed 
capital may very easily be transported across the borders 
to a state where conditions are easier. Such capital would 
respond much more quickly to pressure and is not so de- 
pendent for its value on the precarious future income of the 
business. 

The crucial question is whether the returns on new capital 
invested within the state would be lessened. Would the 
opportunities for new investments be restricted? Enter- 
prisers and capitalists seeking fields for investment have 
the option of going to the state where a system of insurance 
is in operation or of investing in a neighboring state. The 
decision will depend on the relative advantages of one state 
over the other for the particular kind of business they 
are seeking to engage in; and the relative weight which 
must be given to payments for insurance as compared with 
the other advantages and disadvantages. 

Among the inducements which appeal to the prospective 
enterpriser in determining the location of his place of busi- 
ness or factory are: the state la.ws relating to corporations, 
local and state taxation, the presence of a skilled body of 
laborers, the efficiency and cost of labor, nearness to market 
and to raw materials, and railroad facilities. There would 
also have to be reckoned the "burden" of workmen's insur- 
ance or of old-age pensions. In many industries one or the 
other of the enumerated conditions is of determining im- 
portance. In these the burden of workmen's insurance 
would cut no figure at all. In some lines, obvious advant- 
ages are offset or nearly offset by disadvantages, and the 
additional burden of insurance would be considered. The 
establishment of cotton mills in the South brings the advant- 
age of nearness to cotton and coal and iron, but the serious 
disadvantage of lack of reliable skilled labor; the estab- 
lishment of workmen's insurance in Massachusetts would 



110 SOCIAL INSURANCE 

mean simply an additional small item to be considered by 
the enterpriser in deciding where he shall locate his plant. 

As has already been shown, the actual burden of insur- 
ance is very slight. It forms a very small percentage of 
the wages, and an almost insignificant amount when com- 
pared to the price of the product. The conclusion would 
therefore be entirely justified that the burden of workmen's 
insurance is relatively of slight importance and would affect 
little, if at all, the opportunities for new enterprisers or the 
field for new investments. 

The situation of Germany with reference to emigration 
of capital is much more favorable for the maintenance of 
the demand for labor than would be the case after the in- 
troduction of compulsory insurance in an American state. 
All of Germany is uniformly under the system of insurance. 
To escape the burden capital must seek foreign investment ; 
and in a country where the feeling of nationality is so much 
developed there is a much greater desire on the part of 
capitalists to invest in Germany and develop home industry 
than to invest in France, England, or Russia, or even in 
South American countries or in the United States. Tariffs 
and patent laws, as suggested by Professor Herkner, are 
probably of much greater weight. The case of one or two 
American companies establishing plants in Germany would 
tend to confirm the impression that the social burdens are 
not of the first importance in deciding the movements of 
capital. 

There remain to be discussed the influence in stimulating 
industry of the new demand arising from the stream of 
income diverted to the pensioned classes and the effect of 
insurance on the accumulation of capital. The direction 
of demand arising in the state is changed to an extent de- 
pending on the proportion of the sums paid in pensions 
which is drawn from other sources than the income of the 



EFFECT UPON CAPITAL AND ENTERPRISE III 

workers. Industry must naturally adjust itself to the 
change in demand. 

In a closed economy the total value of goods demanded 
would not be changed. More would be demanded of goods 
produced for the working classes, less of goods consumed 
by other classes. If proportionately more labor is 
required for or goes into making goods purchased by the 
working classes, such a change might be accompanied by 
some increase in the demand for labor. 

Industry in a single state adopting social insurance would 
not be affected appreciably by such shifting of demand. 
Any lessening of demand of certain classes would affect 
merely the general market demand for goods produced 
exclusively for those classes, any increase of demand on 
the part of pensioned workingmen would likewise affect 
only the general market prices. Local effects would occur 
only in so far as the shift in demand affected products the 
local supply of which ruled the market, and would be fa- 
vorable or adverse as the demand shifted to or away from 
goods produced by industries of the state. The conditions 
of industry within the state would still be determined 
largely by the influences affecting the emigration of capital 
and the success of enterprisers within the state borders. 

The effect of insurance on the accumulation of capital 
may be treated briefly. There is no reason to suppose 
that the rate of interest would be lowered. 1 In Germany 
large insurance accumulations have been made, in invalid- 
ity insurance especially, and these can be considered as 
additions to the capital of the country. 

The effect of such accumulations on industry depends on 
how they are invested. If there were no condition requir- 
ing such capital to be invested within the state, it could 
have little effect on the situation there. It would mean 
only an increase of capital in the general market, and the 
investment of this within the state would be encouraged or 

1 The effect of insurance on thrift will be discussed in a later chapter. 



112 SOCIAL INSURANCE 

discouraged by the conditions for new investment there as 
compared with conditions elsewhere. Even a requirement 
that it be invested in local securities or local enterprises 
would be of little effect, for if it were invested in securities 
or ventures which would otherwise have attracted other 
capital, it would simply free the latter. This capital would 
then seek further for the most satisfactory and remunera- 
tive investment. If invested, however, in fields not at- 
tracting other capital by the prospective rate of return, 
such as in social welfare work, workmen's tenements, em- 
ployment bureaus, etc., etc., — objects having a justifica- 
tion other than that of securing a regular return on the 
cost, — there might be a slight effect in encouraging local 
industry and furnishing a new demand for labor within the 
state. 



CHAPTER VIII 

EFFECT OF INSURANCE UPON WAGES 

The subject of the effect of an insurance system upon 
wages deserves a special treatment, because of the widely- 
prevalent belief that its effect must be to reduce wages by 
the amount of the benefits. 

There are two views held. One is that commonly held 
by persons who are anxious to fix by law the share of sick- 
ness or of old-age insurance premiums which the workmen 
shall contribute, — that the payments made by employers 
have no effect on wages. This is, further, the position 
taken by most advocates of a state pension for aged per- 
sons. L. W. Squier argues that workers are not now re- 
ceiving a "living wage" and cannot be expected to contrib- 
ute to pensions. 1 Professor Hitze, writing upon the Ger- 
man insurance system, declares emphatically, "It is a meas- 
ure for the safeguarding of the wage. . . . It is rec- 
ognized that the wage must cover not only the needs of the 
worker during his period of activity, but also must provide 
for a replacement of the capital necessary for the education 
and care of youth, the expenditure for a day of sickness, 
old age, risks of life and health as far as they are connected 
with the work. . . . Insurance is the only method of 
ensuring this minimum wage; the insurance contributions 
form a part of the wage." 2 

On the other hand, a suspicion is quite prevalent among 
the business public and among economists that it is not so 
easy to raise wages as is thus assumed. It is held that 

1 Squier, Old Age Dependency, 50, 328. 

2 Hitze, Zur Wiirdigung der deutschen Arbeiter-Sozialpolitik. Kritik 
der Bernhardschen Schrift: Unerwiinschte Folgen der deutschen Sozial- 
politik, 98. 

9 113 



114 SOCIAL INSURANCE 

wages are fixed by economic forces, which cannot be altered 
by mere resolutions of a body of legislators. The Massa- 
chusetts Commission on Old Age Pensions held very strongly 
to this opinion. 1 The prohibition, in the German law, of 
shifting premiums to the workers may be referred to in pass- 
ing. The low wages paid in government positions where a 
pension is held out as a reward after the completion of a 
certain period of service are often cited as evidence of an 
adverse effect upon wages. 2 Professor Taussig believes that 
"the outcome is likely to be that the insurance charges will 
ultimately come out of the workmen's own earnings." 3 
There seems therefore to be ample reason for examining the 
proposition involved and subjecting it to a critical analysis. 

Changes in wages may be due to changes in the supply 
of or to changes in the demand for labor. These may be 
conditioned or caused by a change in the psychological 
attitude of the laborer. The wage cannot usually be re- 
duced beyond what the average workman thinks is fair or 
"decent, " or he will prefer to lay down his tools rather than 
work. On the other hand, wages may be increased or de- 
creased as a result of an increase or a decrease in the de- 
mand for labor. 

The supply of labor in different occupations could be 
affected as a result of introducing accident compensation 
only in two ways: First, by a movement of the supply 
from the less to the more dangerous trades, because of the 
greater value of the chance of securing accident compensa- 
tion. This might take place within the state. Second, by 
an increase of immigration from the industries of a state 
which did not offer compensation to its workers, to secure 
the advantages of compensation for accident without loss 
of wages. 

1 Report of the Commission, 250-254 (19 10). 

2 Cf. Brown, Savings and Annuity Plan Proposed for Retirement of 
Superannuated Civil-Service Employees. 61st Cong., 3d Sess., Senate 
Doc. No. 745, 58-60. 

3 Taussig, Principles of Economics, II. 327. 



EFFECT UPON WAGES 115 

There would be no general shifting from the less to the 
more dangerous trades. Workmen do not stop to calculate 
before engaging in a dangerous trade how much their acci- 
dent insurance will cost them; in most cases they do not 
appreciate the amount of danger. Those who do would 
still estimate the chance of loss of life or the chance of injury 
and find therein an excellent motive for avoiding the trade. 
Enjoyment of accident pensions is not something to which 
workmen normally look forward with pleasure, either on 
their own account or on the part of their survivors. 

Migration from a state without accident compensation 
is likewise little to be feared. Those who fear this assume 
that workmen do estimate danger and seek to allow for it, 
which is scarcely borne out by the facts. They assume far 
too great a mobility of labor and too much knowledge of 
all the conditions to accord with reality. Skilled workmen 
would be more likely to consider such differences in laws 
than unskilled. But the migration of a workman with his 
family from one state to another to secure more adequate 
compensation in the event of an accident killing or injuring 
him, involves a keenness of imagination and of suscepti- 
bility to possible danger that would be apt to deter him 
from undertaking the dangerous railroad journey! In so 
far as the actual daily or weekly wage is not increased, 
there would be no appreciable effect on the supply of labor. 

The relative supply of labor in the principal occupations 
would not be affected by a general provision for old age. 
To the extent that the system was common to all branches 
there would be no temptation to change from one line of 
work to another. The argument from the effect of govern- 
ment pensions on the rates of wages in those occupations 
does not apply if the pension system is general. Govern- 
ment pensions in Great Britain and elsewhere have been 
coupled with low wages for such positions, 1 but this can be 

1 Brown, Civil Service Retirement, Great Britain and New Zealand, 
14-15. 61st Cong., 2nd Sess., Senate Doc., No. 290. A very interesting 
account of wage psychology. 



Il6 SOCIAL INSURANCE 

explained partly as the effect of the general conditions of 
employment, including small chance of dismissal and agree- 
able work, and partly by the greater attractive power of 
prospective pensions and a consequent willingness of work- 
ers to accept less in government employ than elsewhere. 
An interference with the mobility of labor may be a result 
of a partial system of pensions. Professor Seager explains 
the influence of the special provision for professors at Colum- 
bia University. 1 A man who had taught there for a num- 
ber of years would be willing to stay even though he might 
receive an increase of salary by accepting another position. 
He would be influenced in his decision by the value of his 
claim for pension. Xo such tendency or influence would 
appear if the pension system were general. But a general 
system of pensions for members of the working class would 
likewise not involve any tendency to reduce wages because 
of a greater influx of labor into the occupations concerned. 

The only influence considered as tending toward a gen- 
eral decrease of wages on the side of the supply of labor is 
possible immigration. A state or nation with a system of 
old-age pensions, it is urged, will attract workers into it 
from neighboring states to enjoy the promised benefits. 
Obviously, the amount of attractive force will depend on 
the system introduced. A compulsory contributory sys- 
tem where the worker pays the entire cost will have no 
positive effect (and might even have a negative effect), 
while the maximum allurement would be held out by the 
straight pension. The yearly value of a future pension, say 
of Si oo. would not represent a very great increase of wages; 
and differences of wages much in excess of that exist and 
persist in the same trades in localities not far distant from 
each other, even in the same state. Differences in wages 
arising from other causes than insurance would therefore 
continue to exert by far the more important influence on 
migration. Differences in school facilities and in conditions 

1 Seager, Social Insurance, A Program of Social Reform, 122-123. 



EFFECT UPON WAGES 117 

of living would probably be of more importance than old- 
age pensions. For a laborer who is already settled in one 
locality, emigration with a family to a place where condi- 
tions are not very well known is a venturesome undertaking. 
The floating body of workmen are not nearly so much con- 
cerned with the problem of old age. as with the immediate 
satisfaction of their daily needs. For the working class as 
a whole the offer of a state old-age pension would be a very 
small incentive to a change of residence. 

Any movement of workmen already nearing the age 
when a pension would be granted could be prevented by a 
residence requirement. This difficulty, moreover, would 
be found only in the case of a straight old-age pension, and 
would not have to be taken into account in any compulsory 
insurance scheme in which the amount of pension received 
depended on the amount of the contributions made. 

Aside from immigration there would be no increase of the 
number of laborers. An adverse effect upon wages must 
then result either in a psychological willingness to accept 
less on account of the insurance provisions, in a lessening 
of the demand for labor, or in the unwillingness on the part 
of the employers to pay as much as before. There is also 
the question as to whether the price of products will rise 
to such an extent as to affect the cost of living of the class 
to be pensioned. This question may be easily dismissed 
so far as a total offsetting of the advantages of pensions for 
the class under consideration is concerned, for though the 
prices of many articles may rise, the advance will certainly 
not fall entirely or even principally upon the working class. 

The psychological aspect of the risk of accident on wages 
has already been discussed. The conclusions and the impli- 
cations of that discussion may be briefly stated. There is 
no sound basis for the theory that extra pay is demanded 
by workmen for extra risk, except where workmen insure 
themselves either individually or collectively against acci- 
dent. There will be a willingness to accept smaller pay on 



Il8 SOCIAL INSURANCE 

account of adequate workmen's compensation only where 
accident insurance is already provided and only if such 
compensation means that the insurance will be discarded 
as no longer necessary. In the case of the great body of 
laborers this consideration will be of small practical im- 
portance. The average workman does not now realize the 
need of accident insurance and makes no provision for it. 
The more certain and more adequate payment of compen- 
sation does not render him more ready to accept lower 
wages; he regards it simply as fairer and more equitable 
than the older system of employers' liability, as something 
which ought to have been introduced before. Even in case 
of workmen who insure themselves, more adequate com- 
pensation may not mean that they will consent to a wage 
decrease. It may bring with it a better realization of the 
occupational risk, and may not even lead them to abandon 
their own insurance. The agitation for adequate compen- 
sation for injuries received from accidents brings home the 
idea of the value of human life and, consequently, work- 
men may still insist on receiving extra pay for their personal 
hazard. 

With reference to old-age pensions, the Massachusetts 
Commission bases its conclusions that a fall in wages or 
an unfavorable effect on wages will occur even in case of 
a non-contributory state pension partly on the psychological 
factor. The Commission argues that wages will fall (i) 
because of the direct competition of pensioned aged work- 
ers, (2) because of "reflex competition," i.e. the rate of 
wages "demanded" or "required" by adult workers would 
be lessened by a process of advance discounting of the pen- 
sions to be received. 1 

The first of these arguments looks at first sight to be 
based on the action of supply and demand. But the aged 
workers were present and competing for employment before 
as well as after the grant of pensions. Your pensioned 

x Report of the Commission, 252-3. 



EFFECT UPON WAGES 119 

aged worker may think to himself: "I have been getting a 
dollar and a quarter a day for what little work I am still 
able to perform; now the state pays me a dollar a day, I 
do not 'require' and will not ask for more than 25 cents for my 
day's labor." A much more probable result in the case of 
a man who was entirely satisfied with $1.25 a day would be 
that he would work but one or two days in five. The grant 
of a pension gives to the aged worker a strategic advan- 
tage in that he can lower his bid without feeling the con- 
sequences of it. In bad times, with an overstocked labor 
market, he may lower his bid in order to get a job. In 
normal times the aged worker will merely be in a better 
position to insist on getting what he is worth. 

A very probable result would be a fall in wages for part 
of the aged workers. It often happens now that employers 
do not turn off an employee who has worked with the firm 
for a long period of time. They pardon inefficiency and 
slowness because of the memory of his faithful service. If 
such persons were to receive pensions, there would be no 
such humanitarian scruples, and the wage of the aged work- 
man would fall to the level of what his services were worth. 
This tendency would appear only where employers had 
been moved by such motives; and in general, this would 
apply to cases of comparatively skilled workers, in the 
smaller businesses, in employments where the personal 
contact of employer and employee is direct and sympa- 
thetic. Unskilled labor and agricultural labor would be 
little affected. 

The second argument is an imputation of the same kind 
of psychology to all adult workers. He is assumed to dis- 
count the pension to be received — or the probability that 
he will live long enough and be poor enough to be eligible 
to receive gratuitous aid from the state — and to be con- 
tent with wages that are lower by an annual sum which, 
accumulated with interest, will equal at the age of seventy 
the value of the pension. This is a fairly complicated 



120 SOCIAL INSURANCE 

problem. If the pension system has any such effect upon 
the wage rate it is certain that the amount of reduction 
which the worker will accept will be determined by a simple 
process of guesswork. The difficulty with the whole proc- 
ess, however, is that most workers are not sufficiently 
aware of the need of providing for old age to make any 
special effort in that direction. It must be conceded, how- 
ever, that the promise of a definite pension would probably 
loom much larger in the mind of the workman, than the 
fear of poverty or distress on reaching old age. 

It is interesting to compare this argument with a similar 
one rather common in Germany. The workers, it is claimed, 
really force the employers not only to pay their own pre- 
miums or to shift them to the consumer, but also to raise 
wages by the amount of the premiums which the workmen 
are required to pay. Wages in Germany have increased 
very rapidly in the last few years, and part of this increase 
is ascribed to the working of this psychological pressure. 

Both arguments start from the same premise: that the 
standard of living is a determining factor in regulating 
wages. The Massachusetts Commission believed that a 
state provision for old age would permit a reduction in 
expenses of the average workman by relieving him of the 
need of providing for his old age. The German view sees 
only the lessened income of the worker's family for present 
pressing needs due to the subtraction of the workman's 
share of invalidity and sickness premiums. An obvious 
difficulty of the first of these two views is that the workman 
is merely relieved of a need the pressure of which the aver- 
age workman does not feel. Furthermore, this view en- 
tirely loses sight of the fact that the standard of living is 
itself elastic. Nothing is more probable than that the 
workingman, instead of accepting a reduction of wages 
because of these increased benefits to be enjoyed in the 
future, would regard them as a definite addition to his 
standard. 



EFFECT UPON WAGES 121 

In case an attempt was made to reduce wages at the 
time of the introduction of a compulsory insurance system 
of old-age pensions, the probable result would be deter- 
mined resistance on the part of labor. There would be 
no "psychological discount of future benefits" which would 
permit a reduction in the prevailing standards of "fair" 
wages. An illustration of the probable working of this 
psychological factor may be found in the strike at Lawrence, 
Massachusetts. The employers decided to reduce the 
wages of the men to correspond with the reduction of the 
legal weekly maximum of labor time from 56 to 54 hours. 
Instead of seeing that a reduction in their working time 
and in their productivity should naturally be accompanied 
by a decrease in pay, the men revolted against the proposal 
of the employers, with the final result of securing a con- 
siderable increase of wages. To be sure, matters were 
hopelessly bungled by the employers, who did not announce 
the reduction or attempt to prepare the employees for it at 
all, but allowed them to learn of it only by finding a short- 
age in their pay envelopes. The men naturally thought 
that they had been cheated, and were thoroughly aroused 
and united in their resistance. 

Another illustration is found in the introduction of the 
compulsory old-age-insurance system in France. At- 
tempts to deduct premiums from the wages, according to 
the provisions of the law, were everywhere met with re- 
sistance by the mutualists and syndicalists, and it was 
found that there was no way to enforce the payments. The 
legal situation respecting the right and duty of employers 
to subtract such premiums was hopelessly obscured by the 
uncertainty of administrative action and the absence of 
court decisions. 1 

After the system had been in force for some time, it would 
be impossible to distinguish between the effects of deduction 

*Cf. Zeitschrift fur die gesamte Versicherungs-Wissenschaft, XII. Rund- 
schau, columns 449-50; 676, 1303-04 (1912). 



122 SOCIAL INSURANCE 

of premiums and of other causes of low wages, and it might 
be sought to defer an increase in wages because of the bur- 
dens of insurance. It is improbable that laborers would 
be willing to defer increases or make less strenuous efforts 
to secure higher wages on account of any psychological 
attitude toward the benefits of insurance. The psycholog- 
ical attitude would rather be that of including the insur- 
ance benefits in their minimum standard. The same efforts 
would be made to secure better terms of bargaining, and 
the success of these demands would not be influenced by 
any lack of cooperation due to a psychological reluctance 
on the part of striking workmen to insist on "too much." 
The concept of "too much" or "more than is reasonable 
to demand" would probably not take into account pay- 
ments made for insurance against accidents or old age, but 
would rather be based on the cost of living and the various 
items of expense. It does not seem likely that there would 
be a psychological influence in the direction of a decrease 
in wages. 

A distinction may be made between the positions of the 
skilled and the unskilled worker. A skilled workman 
would be more likely to feel that the employer was justi- 
fied in reducing wages a little on account of the extra bur- 
dens of insurance. He makes provision for himself more 
frequently than the unskilled worker. His range of em- 
ployment is more limited in direct relation to the degree 
of specialized skill which he exercises, and consequently 
he has not a wide field of choice of employments. On the 
other hand, skilled men are more strongly organized in 
trade unions, and have relatively more power in case of 
a strike. Even here, the psychological attitude of the work- 
men is of very great importance in maintaining the spirit 
of a strike and in securing what they consider to be reason- 
able demands. 

Unskilled workers, though comparatively less well or- 
ganized, enjoy a wider range of possible employers. For 



EFFECT UPON WAGES 1 23 

workers not in unions, the psychological estimate of what 
is a fair or "living" wage is about the only basis of 
a minimum wage rate. It is much more difficult for 
unskilled laborers to act together, but when aroused by an 
"unfair" reduction of wages cooperation is secured. Un- 
skilled workmen would probably refuse to consider a future 
old-age pension as any justification of a reduction of wages, 
and in periods of increasing cost of living would not be 
influenced by the arguments of employers to consent to 
a postponement of increases of wages. The wider market 
for unskilled labor would make reduction more difficult. 

Influences affecting adversely the demand for labor in 
the event of the introduction of a system of insurance would 
be the emigration of capital to other states or the failure of 
enterprisers. The chief arguments that wages will be re- 
duced are based on the presumed effect on business enter- 
prises. 

The introduction of accident compensation involves 
weighting different branches of industry in proportion to 
their industrial risks. Accident compensation is levied as 
a percentage of the wages paid and varies with the degree 
of hazard. Will there be a lessening of the demand for 
labor in the more hazardous industries such as to produce 
a reduction of wages in them proportionate to the extra 
weight of their accident costs? It will be convenient to 
treat the question of this purely differential effect of the 
burden of accident insurance before coming to the question 
of a general lowering of the wage level due to the cost of 
social insurance in general. 

To argue that wages will be reduced in proportion to the 
weight of the burden imposed is to assume that wages are 
now paid in some measure according to the risk. For if 
wages are not adjusted to the risk, but are ordinary com- 
petitive rates for labor of the desired degree of skill, an 
attempt to lower wages below the competitive rates will 



124 SOCIAL INSURANCE 

be difficult. If no differential wages are now paid, it is 
hard to see how any differential effect on the remuneration 
of labor will take place as a result of the imposition of acci- 
dent burdens. Only where men are now paid higher in 
dangerous trades than in the safer ones can a reduction in 
wages be effected without forcing labor into other employ- 
ments; and then only if labor is content to remain in the 
dangerous trade on this basis. Differential reduction of 
wages can take place only to the extent that labor is willing 
to accept less on account of workmen's compensation. Dif- 
ferential wages depend essentially on the movement and 
on the demands of labor. The imposition of an extra bur- 
den in some trades will not reduce wages in those trades in 
proportion, but will appear rather in an effect on the general 
wage rate. The hazardous industries will accommodate 
themselves to the general price of labor. 

Many of the most hazardous industries are purely local. 
Construction work, the building trades, tunneling and under- 
ground construction, railroading, are all strictly localized. 
A building needed in New York city cannot be erected 
except under the laws of the state of New York. The 
higher cost of construction cannot be evaded; buildings 
will have to be erected under the new conditions, and there 
will be little or no decrease in the demand for labor neces- 
sary for their construction. 

The effect of social insurance upon industry has already 
been discussed. How much will the effective demand for 
labor be reduced? The effect on capital and enterprise 
representing demand for labor varies with the nature and 
position of the industry. An industry which is in no dan- 
ger from competition either because of monopoly privileges 
or because of great advantage of situation, of efficiency of 
labor, or of general efficiency, etc., will not be seriously 
threatened by the cost of insurance. Industries producing 
for a local market will be unaffected by competition. Em- 
ployers in these trades will be inclined to accede to the de- 



EFFECT UPON WAGES 1 25 

mands of employees. Where employers control the price of 
the products, especially if the demand is inelastic, there will 
be no reduction in the demand for labor or in wages. In 
industries where it is possible to meet a new cost by cur- 
tailments in expenses, there will be no change in the demand 
for labor unless the reduction in cost takes the form of 
the introduction of machinery or labor-saving devices. 
In this case there might be a decrease in the demand 
for skilled labor or a shifting of demand to unskilled 
labor. The immediate change would depend on whether 
the machine or process introduced required more or less 
specialized skill. If the saving in cost should more than 
offset the burden of insurance the effect on the demand 
for labor in the long run would depend on the nature of 
the industry and the expansibility of the demand for its 
products. If a large part or all of the increase in cost due 
to insurance can be met by reductions in expenses secured 
by means other than the introduction of labor-saving 
devices, a decrease of wages is not to be feared. Where 
the industry has a large amount of fixed and specialized 
capital which must accept a reduction of value as a result 
of the new system, it will usually be profitable to employ 
as much labor as before. In so far as marginal producers 
or marginal industries are affected, or industries which suffer 
from severe competition from without the state, they may 
be forced to go out of business or move to a neighboring 
state. In such cases there will be a reduction in the number 
of men employed, or workmen in these industries will sub- 
mit to a reduction of wages as a necessary alternative. 

If the industry cannot survive unless reductions of 
cost are made, and if the only possible reduction is in wages, 
the w r orkmen may be induced to accept an actual reduction 
in preference to seeking a new employment. Unskilled 
workmen would probably fare better in these circumstances 
than the more specialized workmen, because of the larger 
field in which the former can sell his labor. Reductions in 



126 SOCIAL INSURANCE 

employment may appear only in unemployment or may 
tend to affect the rate of wages, and will be temporary or 
permanent depending on whether or not the attractions for 
new enterprise are undiminished. The principal change in 
the attractiveness of the state for new investors would be 
the burden of insurance premiums. If this were offset by 
reduction of wages there would be no diminution of at- 
tractiveness; if the advantages of the state for industry in 
certain lines were still sufficiently great to offset any "bur- 
den" of payments, there would be no change in the willing- 
ness of capital to seek investment there. In so far as new 
investments are not reduced there would be no permanent 
lessening of the demand for labor. 

New demand for labor arising as a result of the diversion 
of the income stream to the pensioned workers would have 
no appreciable effect on the demand for labor within a sin- 
gle state; and the accumulation of capital under compul- 
sory insurance would have an appreciable effect on labor 
within the state only if locally invested in ways not appeal- 
ing to the ordinary capitalist. 

The extent of the hypothetical changes in demand for 
labor must depend in last analysis upon the importance 
and weight of the burden imposed on the employer and 
capitalist. Even if the most extreme case is considered, — 
where a single state adopts suddenly social insurance to the 
full extent, — the burden which cannot be otherwise met is 
so small that it would have a negligible effect when com- 
pared to the other conditions determining the advantages 
of the state for industry. Where already a considerable 
item of cost for accidents has been imposed on employers 
by employers' liability laws, where there is a similar 
item in neighboring states, and where the purpose of insur- 
ance legislation is merely that of leading the way to a more 
complete provision covering all of the contingencies con- 
sidered, there is even less ground for a fear either that 
industry will be injured or that labor will suffer in reduced 



EFFECT UPON WAGES 127 

wages. If a system covering the entire country is adopted 
at one time, there will be yet less to fear. Emigration of 
capital and enterprise cannot take place from the nation 
with the same absence of friction as from one state to an- 
other; tariff conditions and the safety and control of in- 
vestment are much more decisive factors than the "burden" 
of social insurance. 



CHAPTER IX 

EFFECT OF INSURANCE UPON THRIFT 

What will be the effect of social insurance upon thrift? 
How will it affect the private accumulation of means to 
provide for the contingencies of life? It is an argument 
frequently made that the grant of aid by the State and the 
requirement that employers shall contribute to pensions 
for their employees will lead to a melancholy state of de- 
pendence among the latter and will encourage thriftlessness. 
Workmen will feel, it is urged, that they will be cared for in 
case of accident, sickness, and old age and will make no 
special effort to help themselves. They will depend more 
and more on the State and on efforts made for them by 
others; they will grow less and less independent, and this 
will ultimately appear in and mean a great increase in the 
cost of poor relief. The grant of old-age pensions is re- 
garded simply as poor relief in another form. On the 
principle that a nation will have as many poor as it chooses 
to pay for, a general opposition to all measures of social 
insurance or of pensions is based. These claims and argu- 
ments deserve to be examined. If any disastrous effect 
on thrift or on the ability or will of the average workman to 
take care of himself is to follow the adoption of social in- 
surance, this would be reason enough in itself to refuse to 
adopt it. 

In the nature of the case these questions turn on the 
distribution of cost. There is no intimation here that the 
accumulation by workingmen of savings to provide for old 
age is not desirable; it is granted, rather, that adequate 
provision is or should be the highest aim for society. Such 
provision ''undermines the independence" or the "spirit of 
thrift" of the workman only when the funds come from 

128 



EFFECT UPON THRIFT 1 29 

another source, where part or all of the cost is laid on em- 
ployer and industry, where the State contributes generously, 
and especially where the State grants a straight pension 
without levying any portion of the cost on the workers 
pensioned. 

This general argument applies especially to social pro- 
vision for old age. Accumulation of savings to meet the 
risks of accident is often useless ; the costs of sickness do not 
necessarily require a long period of saving. But the ac- 
cumulation of savings or of property is absolutely neces- 
sary if the workman is not to be dependent in his old age. 
The consideration of the question in this chapter will there- 
fore be confined chiefly to the effects on thrift of the various 
ways of providing for the aged members of society. 1 

The great danger with any measure of social legislation 
that bears in any way upon pauperism is that in some un- 
foreseen manner the very provision that seeks to lessen 
or alleviate poverty and distress may actually increase it. 
The well-known statute by which rates of wages in England 
that were insufficient for supporting families of certain 
sizes were supplemented by subsidies from the poor rates 
did not alleviate pauperism, but, by encouraging factory 
employers to give low wages, and by an increase in the size 
of the family, defeated its own ends. 

A system of compensation for injuries will defeat its ends 
to the extent that it causes an increase of accidents. 2 Pub- 
lic care of the sick ought to result in a decrease of sickness. 
A sickness insurance measure has to provide methods of 
controlling the claims for sickness pay and for preventing 
attempts to defer recovery. Independently of the question 
of individual provision of sums for meeting the expenses of 
sickness, a strong argument can be made in favor of a public 

1 For the relation between social insurance and poor relief expense, 
cf. Woodbury, Social Insurance, Old Age Pensions, and Poor Relief, in 
Quarterly Journal of Economics, XXX. 152-171 (1915). 

2 This subject will be briefly treated in the following chapter. 



130 SOCIAL INSURANCE 

campaign against sickness, on the ground that the benefit 
to the public would more than justify the necessary expen- 
diture. Sickness insurance, by spreading information and 
extending medical care to those who could not otherwise 
afford it, by providing methods of meeting the cost of a 
campaign against sickness of all kinds, and by equalizing 
the burden of sickness among workingmen's families might 
itself be a valuable method of attack. 

But in case of the economic problems of old age, elimina- 
tion of the aged by the Osier method being unthinkable, 
it remains to provide for their needs as well as possible. 
With the increase in the average length of life the propor- 
tion of the population which lives to advanced age is in- 
creasing. At advanced age the abilities and opportunities 
of workers to earn money are seriously reduced. Here it is 
a question of thrift. Thrift must have been exercised in 
the years prior to reaching the age of dependence to safe- 
guard against the poorhouse. 

Whether or not old-age pensions are to be looked upon as 
poor relief in another form is immaterial to the point under 
discussion. It can be argued, perhaps, that the worker 
who has spent the best part of his life in developing the 
resources of the country is entitled to be cared for in his 
old age. The cost may possibly be justified on this ground. 
But the question under discussion is whether the effect 
would be to increase the dependence of aged workers, to 
make the proportion of aged who need pensions greater, or, 
in other words, to lessen the thrift which each worker ex- 
ercises for himself during his years of employment. 1 

Is it necessary to hold before the working population the 
prospect of an old age of misery, want, and shame as the 
penalty for lack of thrift? Will a more generous treatment 

1 The control of the age of pension claimants is simple where there 
has been for a long period complete registration of births. Otherwise 
there is danger of fraud or misrepresentation in statement of age. Cf. 
note on Ireland, supra, 22. 



EFFECT UPON THRIFT I3I 

of the aged mean a lessening of the motives of accumulation 
of savings among the working classes? 

Thrift may be denned as a habit of mind which seeks to 
reduce expenditures for present purposes to a minimum. 
It seeks to widen the margin between the standard of 
expenditure and the income received, and there is usually 
but not necessarily some definite object toward which the 
savings or accumulations are to be devoted. The exercise 
of thrift depends on the strength of the motives leading to 
the exercise of it compared with the intensity of the wants 
needing present satisfaction. The intensity of present 
wants depends further on the requirements of the standard 
of living and the possibilities afforded by the amount of 
income. Accumulation of savings does not mean that the 
sums saved will be applied to the purpose for which they 
were originally intended. For other wants may continually 
arise and demand satisfaction; it depends on the degree of 
persistence and resolution on the part of the saver, whether 
the exercise of the original self-denial will ultimately result 
in his reaching the goal towards which he started. The 
exercise of economy, to be effective, must be carried out 
with continuity of purpose; thrift must become a habit, 

A wide margin between the standard of living and the 
income received makes the exercise of thrift easy. Immi- 
grants who have brought with them the standard of living 
enforced on them by the more severe conditions of the old 
country find it easy to accumulate savings. Large sums 
of money are sent home annually by Italian, Hungarian, 
and Greek immigrants. The Chinese have no difficulty 
in accumulating large amounts from their wages, because 
their standard of expenditure is low. In some savings 
banks in our eastern cities it is thrifty foreigners who hold 
a majority of the deposit accounts. The standard of living 
of the American workman is more closely adjusted to the 
wages received, and he finds it more difficult to make any 
accumulations from his earnings. These differences grad- 



132 SOCIAL INSURANCE 

ually disappear as the standard among our immigrants and 
their descendants grows to meet their earnings. 

A powerful motive or a ready means of profitable invest- 
ment encourages thrift. The willingness to exercise self- 
denial is, for example, probably much strengthened when 
a father is trying to send a son through high school or col- 
lege. Saving among Armenian immigrants is probably 
encouraged by their desire to become independent. Men 
who started as bootblacks or shoe-repairers now have well- 
kept shops filled with machinery and do a thriving business. 
Greek immigrants acquire and develop confectionery stores. 
Undoubtedly such openings for business investment give 
an impetus to the accumulation of the necessary capital. 

The fundamental conditions of thrift are essentially 
different in the working classes and in the middle classes. 
The possession of the economic virtue of thrift, of the 
psychological characteristics of ability to see and to develop 
an opportunity for investment and to invest wisely, together 
with the continuity of purpose that is requisite in accumu- 
lating a sum for a specific end, will probably place a man 
an the middle class. Men beginning as workers will be 
able under free conditions of enterprise, especially in a 
young country, to rise to independence. Those left in the 
working class as permanently dependent will very likely 
be those who lack these qualities. 

The exercise of thrift does not necessarily lead to the 
accumulations of saving or to wise investment. Italians 
from the various sections of Italy living in Worcester, Mass., 
spend large sums of money every year in pyrotechnic dis- 
plays in honor of the patron saints of their districts, each 
section in a spirit of emulation desiring to outdo the others 
in the brilliancy of the display. There is surely the collec- 
tive exercise of thrift, but it is applied to a useless purpose. 
An individual workman may succeed in getting a little ahead 
of the game by accumulating a small sum. Then a clever 
book agent persuades him to part with the hard-earned 



EFFECT UPON THRIFT 1 33 

savings. Such as these have neither the fixity of purpose 
nor the capacity of judicially weighing the importance of 
different possible expenditures necessary to make the 
exercise of thrift avail for a purpose set far ahead in the 
distant future. 

There are many who fall below the level of those who are 
inclined or able to exercise thrift. Some are positively 
improvident. Their income is spent before they have re- 
ceived it. They may have borrowed money of loan asso- 
ciations and may never have succeeded in getting the debt 
paid off. Where improvidence is coupled with the drink 
habit or with aversion to labor, these persons sink easily 
into the pauper class. 

The conditions of thrift vary with the period of life of the 
workingman. Before marriage earnings exceed expenses by 
a safe margin. After marriage comparative prosperity 
continues until the arrival of the second or third child. The 
pressure of present wants is especially heavy during the 
years of married life when the family is still wholly de- 
pendent on the earnings of the father. Conditions become 
easier from the time when the first child begins to earn; 
when the last of the children is earning money conditions 
are easiest. This period of comparative ease is followed by 
difficulties that begin with the decline of the earnings due 
to the infirmities of old age. 1 The exercise of thrift for the 
purpose of providing for old age will be most difficult during 
the period of greatest pressure of wants. 

Providing for old age or for any need of the distant future 
is rendered difficult by the variability of income. So long 
as income is regularly earned, some savings may perhaps be 
made. With periods of unemployment, sickness, or in- 
jury, the difficulties of continuing accumulation are insur- 
mountable; the family must live on the savings already 
made. For these reasons the absence of savings does not 
necessarily imply improvidence. Only with provision 

1 Cf. Rowntree, Poverty, A Study of Town Life, 136-7. 



134 SOCIAL INSURANCE 

made for accident, sickness, etc., does effective accumula- 
tion for old age become possible. 1 

What will be the effect on thrift of the different methods 
of providing for old age by social legislation? Thrift will 
be affected by either weakening of the motives to saving 
or lessening of the ability to save. The only motive to save 
that would be affected by social provision for old age is the 
desire to make independent provision for old age. The 
reduction of this desire can obviously have weight only 
to the extent that the desire itself is effective, only, thar is, 
to the extent that provision for the 3^ears of dependence is 
actually made by the working class by thrift at the present 
time. Social legislation, on the other hand, would diminish 
the practical possibility- of exercising thrift only to the extent 
that it reduced wages. 

There are three principal ways in which governments 
have tried to solve the problem of destitution in old age. 
They have sought to encourage and stimulate thrift- France 
and Belgium have established old-age-pension institutions, 
which offer definite pensions in return for a given amount of 
deposits. These institutions afford a safe place of deposit 
and encourage saving for the definite purpose of providing 
for old age. Deposits once made cannot be withdrawn and 
used for other purposes. More immediate demands cannot 
make inroads upon the funds accumulated for the last years 
of life. Workmen have been encouraged to deposit in the 
institutions by the grant of subsidies. 

1 Cf . the statistics ::' the Massachusetts commission cm the aged 
poor population of the state. The percentage erf those who had prop- 
t : above debts it any was " J. The percentage of property 

holders who sustained losses was for all classes 56.1; of almshouse in- 
mates :-_ .-.:-.-.: ng the causes of property loss, extra expenses on 
account of sickness and emergencies show an average percentage of 
60.1; business failures and bad investments come second, with 1 5 _ 
intemperance and extravagance stand third, with 6.2; while fraud and 
fire claim 5.1 and 3.2 respectively Report of the Commission 57 



EFFECT UPON THRIFT 1 35 

An adverse effect on thrift in general can scarcely be 
attributed to a measure which encourages or places a pre- 
mium on the exercise of thrift. There is no reason to think 
that the offer of such subsidies would cause a growth of 
dependence or thriftlessness among the working population. 
The receipt of a subsidy is always conditioned on the 
deposit of a certain minimum amount. The exercise of 
thrift by the workingman himself is prerequisite to his 
receiving a subsidy. The effect of the grant of a subsidy 
is no different in its psychological appeal from an increase 
of the interest rate. But the chief value of the grant of 
government aid, possibly, is of an advertising nature: it 
brings home to the workingman the need of making some 
provision for his later years. 

Far from discouraging thrift, these measures have met 
with a certain success in encouraging and stimulating it. 
The Belgian government has given liberal subsidies to 
depositors in the old-age institution since 1900. Sub- 
sidies were granted equal to three fifths of the yearly de- 
posits under 15 francs, with a maximum of 9 francs per 
account per year; for those over forty, the maximum aid 
was set at 14.40 francs. In 1903 the yearly allowance of the 
state was increased for the higher age classes. At the same 
time agitation was carried on in the schools to encourage 
children to deposit their savings. The total number of 
depositors in the Belgian institution rose from 169,000 in 
1899 to over a million in 1910. 1 

Some of the savings thus deposited in the old-age insti- 
tutions represent merely transferences from other places 
of deposit. In the early years of the French institution the 
rate of interest was usually above the market rate, and 
the deposits were made chiefly by the middle classes. 2 A 

1 Rubinow, Social Insurance, 342. 

2 Workmen's Insurance and Compensation Systems in Europe, in 
Twenty-fourth Annual Report of the Commissioner of Labor, I. 834-35 
(1908). The law of 1886 permitted an annual adjustment of the rate of 
interest paid by the institution to the market rate. 



I36 SOCIAL INSURANCE 

requirement in the Belgian pension law of 1900 that persons 
who were from 55 to 58 years of age on January 1, 1901, 
must prove that they had deposited a certain minimum sum 
in the old-age institution in order to qualify for the state 
pension granted on reaching 65, caused a large increase in 
the deposits of this age group. Part of the savings so de- 
posited may have been transferred from other places, as 
the easiest method of satisfying the law. 2 For the rest, the 
increase in the number of depositors and the amount of 
deposits can be taken as evidence of more adequate realiza- 
tion of the necessity of saving. 

The second method of social provision for old age is 
that of compulsory insurance. What effect does this have 
on the thrift of the working classes? To the extent that the 
workingmen themselves contribute, it not merely encour- 
ages but it compels thrift, and secures the effective saving 
and accumulation of sums for a definite end. It reinforces 
the desire to save by making saving compulsory. And the 
effect on the will to save would further be rather to stimulate 
than to retard it. The weekly reiteration of the deductions 
for future contingencies keeps before the minds of the 
workers the idea of saving for a definite purpose, and the 
desire to supplement the amounts to be received may easily 
encourage further accumulation. Those who would save 
anyway would not be induced to lessen their savings ; while 
a large number would be compelled to save, who otherwise 
would never have thought of saving or would not have 
given serious thought to it. 

The excess of the workingman's income over his expendi- 
ture may be reduced by the amount of the deductions from 
wages or by the amount of whatever decreases in wages 
may result from the imposition of the burden upon the 
employers. The loss in present wages can be no greater 
than if the entire sum were levied on the worker in the first 

2 Twenty-fourth Annual Report of the Commissioner of Labor, I. 511, 
521. 



EFFECT UPON THRIFT 1 37 

instance. But the sums deducted from the wages are 
definitely saved. On the average, more is saved in that way 
than under ordinary conditions. The margin of surplus 
for further saving may be somewhat reduced, but the 
desire to save further is stimulated rather than satiated by 
compulsory insurance. Industrial insurance for working- 
men has increased very greatly in Germany since the enact- 
ment of workmen's insurance. 1 The educative value of 
social compulsory saving can scarcely be overestimated. 

The Swedish compulsory insurance act requires all sums 
to be paid by the insured person. The German act places 
part of the cost on the employer. It is difficult to see how 
the fact that a large part of the cost is laid on the employer 
and the State could foster a spirit of dependence among 
workmen. Surely it would not cause any lessening of 
individual thrift. Compulsory insurance means in fact a 
considerable increase of thrift among the working classes. 
The entire earnings of workers are paid by employers in the 
first instance, and how it could increase the feeling of de- 
pendence to understand that employers contribute addi- 
tional sums for the purpose of defraying the cost of pensions 
for infirmity, old age, and accidents is not clear. If any 
such feeling developed, it would be due only to a realiza- 
tion that employers were contributing sums that were 
gratuitously given, over and above what workmen were 
entitled to. Does a workman whose employer generously 
raises his wages above the market level, feel more dependent 
than before? He may be grateful for the increase, but 
usually he probably feels in his heart that he deserved it. 
That the sums given for pensions are more than the workers 
are entitled to may be "realized" by employers. The 
establishment of compulsory insurance would lead sooner 
to a realization on the part of workers that the employer 
ought to contribute, than to a feeling of dependence that 
would be dangerous to the State. 

1 Cf. Lass and Zahn, Einrichtung und Wirkung, 218 (1900). 



I38 SOCIAL INSURANCE 

There may be some danger, to be sure, that the establish- 
ment of compulsory insurance may lead to an increase of 
the share of the burden which is laid on the employer. But 
demands for such an increase of the employer's burden 
would indicate a greater independence on the part of labor 
rather than a weak or dangerous subservience or inertia. 
It may be worth noting that the recent increase of the bene- 
fits for survivor pensions made in the revision of the Ger- 
man law of 191 1 was accompanied by an increase in the con- 
tributions of workingmen. The Social Democrats refused 
to accept an amendment requiring employers to increase 
the proportion of their contributions to sickness insurance 
from one third to one half to avoid a corresponding reduc- 
tion in the representation of workmen on the boards of 
administration of the sick funds from two thirds to one 
half. 

Finally, the effect on thrift of a scheme of government 
old-age pensions remains to be considered. No contribu- 
tions of any kind are required. Here, if anywhere, there 
will be an adverse effect on thrift. The difficulty in old-age- 
pensions legislation is that the thrifty are denied pensions 
and the unthrifty are given them ; the dependent are favored 
and a premium is placed on the lack of thrift. 

Pension legislation can affect the thrift of the working 
classes only through lessening the desire to save, and the 
effect will depend largely on the specific provisions of the 
law. 

The saving habits of persons approaching the pension 
age ma}* be disastrously affected. In Denmark, pensions 
are given at the age of 60 to persons who are needy and 
deserving, and the amount is measured by the degree of 
need. If the savings accumulated are large enough to 
debar the owner from qualifying for a pension there is a 
great temptation to squander them in the years before 
sixty. If the choice is between living on one's accumulations 



EFFECT UPON THRIFT 139 

on the one hand and enjoying one's accumulations prior to 
the age of sixty and living on a pension afterwards, there 
will be a strong tendency to use both the savings and the 
pension. If the pension is measured by need, there is little 
incentive to save anything. A tendency to enjoy savings 
would be specially manifest where the amount accumulated 
was not of itself sufficient to insure an income as large as the 
pension, though large enough to exclude the possessor from 
the right to the state allowance. 

If the possession of property or income by an applicant 
for a pension does not disqualify, — in other words, if the 
exercise of thrift is not penalized, — no adverse reaction 
upon the thrift habits of the working population need 
occur. No country gives pensions to all without reference 
to their income. All sorts of special provisions are made to 
avoid the difficulty of penalizing thrift. The Australian 
law gives a pension up to £26 per annum to aged residents 
whose independent income does not exceed £52. The 
pension is graduated so that the whole income including 
the state allowance does not exceed £52 as a maximum. 
For every complete £10 of property by which the net 
capital value of the property exceeds £50, a deduction of 
one pound is made from the pension. From the capital 
value of the accumulated property is deducted the capital 
value of a home in which the pensioner permanently resides 
and all charges and encumbrances existing on the property 
other than the home. Accumulated property of £310 
disqualifies. If an applicant directly or indirectly disposes 
of his property in order to claim a pension he also is dis- 
qualified. Benefits received from registered benefit so- 
cieties, or benefits during illness, infirmity, or old age, from 
any trade union, provident society, or other society or asso- 
ciation are not counted as income within the meaning of the 
act. 1 

1 The Official Yearbook of the Commonwealth of Australia, VII. 1044 
(1914). Similar provisions apply in New Zealand. Cf. The New Zea- 
land Official Yearbook, 892-93 (19 12). 



140 SOCIAL INSURANCE 

These exemptions avoid the danger of penalizing thrift. 
Savings which are made by the average workman will not 
lessen the pension to which he is entitled. Practically 
any provision that he might make is excepted ; benefits from 
trade unions or mutual aid societies and accumulations 
invested in a home do not cause either lessening of the pen- 
sion or disqualification. The line of division which the 
law seeks to draw is between the accumulations of the 
working class and those of the middle class. Thrift is still 
required of the members of the latter, who are better able 
to exercise it and among whom it is regarded as a prime 
virtue. The provisions of the pension law encourage thrift 
among the working classes by ensuring that their accumu- 
lated savings shall not affect the amount of their pensions. 

The grant of old-age pensions would probably not cause 
a general diminution of thrift. Pension legislation would 
at most remove from the motives that actuate the work- 
men to save merely the desire of providing for old age. 
This desire plays but a minor part in saving among the 
working class. There is on the whole little saving for old 
age, as is shown by the large proportion of the aged popula- 
tion of England and Australia that qualify for pensions of 
five and ten shillings a week respectively. The argument 
that old-age pensions will destroy thrift assumes that the 
sole object of that habit of economy is to provide for old 
age. Economy may be practiced for many objects. Other 
motives for saving are not affected. The desire to provide 
education for one's children or to acquire a home would be 
quite as effective a stimulus to economy as before. A 
habit of economy is enforced by the conditions of life, and 
there is at best but little room for accumulation. The idea 
of pensions could not arise at all were it not for the general 
lack of provision made by members of the working class and 
the poverty among such as reach old age. Pension legis- 
lation is enacted in simple recognition of the fact that 
thrift among the working class does not provide for old age. 



EFFECT UPON THRIFT I4I 

No disquieting effect on the morale of thrift among the 
working classes is, therefore, to be feared. Government 
subsidies directly encourage it. Social insurance adds the 
compulsion that makes thrift effective. Old-age pensions 
may lead to an undesirable squandering of accumulations 
by the population just below the pension age on the part 
of those whose savings are not very large. If the possession 
of savings or income is discriminated against in awarding 
or in measuring the amount of assistance, a reaction against 
thrift may occur. With proper exemptions, however, this 
effect can be reduced to a minimum. In general, pro- 
vision for old age does not seriously reduce the effective 
motives for saving. There are so many other contingencies 
which appeal more to the average workman, that if in- 
clined and able to save, he will continue to lay by such 
sums as he can. 



CHAPTER X 

EFFECT OF WORKMEN'S COMPENSATION ON THE PREVENTION 
OF ACCIDENTS 

The effect of accident compensation on the frequency of 
accidents and on measures taken to insure safety is of the 
greatest importance. The earlier doctrine, that it was the 
best public policy to have the employee bear the risk of the 
trade, rested not only on the inherent justice of it but also 
upon the belief that it was the best method of preventing 
accidents. It was held that only by placing the entire 
responsibility- and loss on the workman injured would he 
use his best efforts to prevent accidents. On the theory that 
all accidents are caused by fault or negligence, what better 
way of lessening the frequency of accidents could be found? 

This idea was quite subordinated, however, in some of the 
later developments of the doctrines of the common law. 
The insistence on the freedom of the employer from lia- 
bility in cases where fellow servants were blamable. even 
though working in quite different occupations, left the 
question of preventing accidents out of account. The 
individual workman could exercise no control over either 
the choice or the action of his fellow worker. The doctrine 
of the assumption of risk was extended even to include cases 
where employers had neglected to repair machinery or 
install safety devices required by law. if the omission had 
not been reported and protested against by the workman. 
This doctrine carries to its logical conclusion the accident 
theory of common law liability: to prevent accidents, make 
the employee responsible. Nevertheless, from a common- 
sense viewpoint, these rules of interpretation seem to strain 
at a gnat — what the workman might have done to prevent 

142 



THE PREVENTION OF ACCIDENTS 1 43 

the accident — and swallow the camel — that the employer 
had failed to do what he was required by law to perform. 

Workmen's compensation frankly puts the burden in 
the first instance on the employer. The employer must 
find means to shift the burden to other shoulders or pay it 
himself. One of the most obvious methods of reducing the 
cost of accident compensation is to prevent the accident. 
By placing the cost of the losses of accidents upon his 
shoulders a most effective inducement is given him to 
install all the best safety devices and utilize every means in 
his power to lower the accident rates. Probably a majority 
of employers do take "reasonable" care to avoid accidents; 
but charging them with the costs of accidents will never- 
theless operate to produce a much more careful attention 
to their causes and prevention. 

Placing the burden of cost on the employers does not 
take away from the workmen their interest in preventing 
accidents. The injured workmen still suffer. The pain 
cost falls entirely on them. 

The history of labor legislation, and of safety regulations 
in particular, shows the relative power of employer and 
employee in preventing accident. Laws have required 
employers to live up to certain minimum regulations, to 
provide fire escapes, to install safety guards on dangerous 
machinery and other kinds of safety devices. Much still 
remains to be done. The law has recognized that the 
employees cannot always insist, in the wage bargain, on 
the adoption of safety appliances. From the time of the 
factory acts of England in 1802, legislation, including the 
limiting and the prohibition of child labor and women's 
labor, enforcement of decent factory conditions, shortening 
of the hours of work, etc., has recognized that the way to 
improve conditions of work is to hold the employer rather 
than the employee responsible. 



144 SOCIAL INSURANCE 

What has been the actual effect of workmen's compensa- 
tion on the frequency and cost of accidents? 

Statistics of accidents are for the most part quite un- 
trustworthy. In Germany, where the reporting of acci- 
dents takes place in connection with workmen's insurance, 
there are fairly satisfactory records of the more serious 
accidents. Since the introduction of such insurance in 
1885, the rate of fatal accidents in industry per 1000 in- 
sured persons decreased from a maximum of 0.77 in 1887 
to a minimum of 0.56 in 1910. 

The frequency of accidents causing permanent disability 
has likewise decreased from a maximum rate of 0.73 in 
1887 to a minimum of 0.03 in 191 2. Part of this decline 
may be attributable to more careful classification of serious 
accidents. Accidents formerly assumed to be likely to 
cause total permanent disability and placed provisionally 
in the total disability column may have proved to be less 
serious. If a closer scrutiny and a more careful sifting of 
these cases now takes place some of the decrease may be 
accounted for. But this would mean a relative increase 
in the partial or temporary disability classes. It is prob- 
ably true, moreover, that a substantial net decrease has 
taken place in the frequency of accidents resulting in total 
permanent disability. 



THE PREVENTION OF ACCIDENTS 



H5 



TABLE I 

NUMBER OF ACCIDENTS PER IOOO INSURED (INDUSTRIAL CORPORATIONS) 1 









Permanent 






Year 


Injuries 
Notified 


Fatal 


Disability 


Temporary 
Disability 


Total 
















Total 


Partial 






1886 


26.91 


O.70 


0-45 


I .10 


0-57 


2.83 


1887 


27.42 


0-77 


0.73 


2 


11 





53 


4 


H 


1888 


28.04 


0.68 


0.43 


2 


38 





85 


4 


35 


1889 


29.42 


0.71 


O.48 


2 


69 





81 


4 


70 


1890 


30.38 


0-75 


O.38 


3 


26 





97 


5 


36 


1891 


31-94 


0.71 


O.31 


3 


43 


I 


10 


5 


55 


1892 


32.49 


0.65 


0.30 


3 


56 


I 


13 


5 


64 


1893 


35 23 


0.70 


0.26 


3 


82 


I 


25 


6 


03 


1894 


36.37 


0.65 


0.16 


3 


82 


I 


62 


6 


25 


1895 


37-90 


0.67 


O.15 


3 


57 


I 


85 


6 


24 


1896 


40.69 


0.71 


O.IO 


3 


53 


2 


38 


6 


72 


1897 


41-77 


0.70 


O.IO 


3 


52 


2 


59 


6 


9i 


1898 


42.89 


o.73 


0.08 


3 


54 


2 


75 


7 


10 


1899 




0.72 


0.09 


3 


58 


3 


00 


7 


39 


19OO 




0.74 


0.08 


3 


58 


3 


06 


7 


46 


I9OI 




0.72 


0.09 


3 


80 


3 


46 


8 


07 


1902 




0.64 


0.08 


3 


76 


3 


58 


8 


06 


I903 




0.63 


0.08 


3 


68 


3 


72 


8 


11 


1904 




0.63 


0.08 


3 


68 


3 


92 


8 


3i 


1905 




0.63 


0.07 


3 


59 


4 


05 


8 


34 


1906 




0.63 


0.07 


3 


49 


4 


07 


8 


26 


1907 




0.68 


0.06 


3 


36 


4 


26 


8 


36 


1908 




0.67 


0.06 


3 


26 


4 


37 


8 


36 


1909 




0.62 


0.05 


2 


86 


4 


35 


7 


88 


1910 




0.56 


0.05 


2 


54 


4 


24 


7 


39 


I9II 




0-59 


0.04 


2 


32 


4 


20 


7 


15 


1912 




065 


0.03 


2 


32 


4 


32 


7 


32 



1 Amtliche Nachrichten, Uebersicht I, XXX. 13. There appears a 
considerable discrepancy between the figures as published in the annual 
reports and the revised figures. The revision adds a few cases to the 
fatal injuries, subtracts a large number from the cases classified at first 
as complete permanent disability, subtracts a small number from the 
rates for partial permanent disability, and adds materially to the number 
of those injured whose disability was temporary. See, for example, the 
following table (New York Bureau of Labor Statistics, Seventeenth 
Report, II. 763): 



146 



SOCIAL INSURANCE 



Accidents involving partial permanent disability in- 
creased steadily up to a maximum of 3.82 per 1000 insured 
in 1893 an d 1894, remaining nearly constant till 1901 
(3.80) ; since when the rate has steadily declined to 2.32 in 
1912. The increase in the earlier years was probably 
due almost entirely to the better reporting of accidents. 
Workmen may at first have been ignorant of their rights 
in the matter of compensation. Part of the increase may 
further be due to the increased willingness of the authorities 
to grant compensation in the form of a small pension for 
minor injuries. The decline in the rate since 1901 is prob- 
ably to be interpreted as due to increasing care in the pre- 
vention of accidents. — the effect of such preventive action 
having previously been masked by the increase in the 
proportion of accidents which were reported. 

Accidents involving only temporary disability show a 
constantly increasing proportion, reaching a high point 
of 4.37 per 1000 in 1908. Since then the rate has re- 
mained nearly stationary-. Probably most of the increase 



-~ .:zi ?zj. :: ; : : 5 .".:: 









Permanent Disability 








r« 


:al 










Temporary 




:--- 


r ; es 










Disability 










- =.-.= 


Pin 


.-. 




- :i: 










Annual 


Re- 


1 Annual 


Re- 


Annual 


Re- 


Annual 


Re- 




Reports 


vision 


j Reports 


vision 


Rei arts 




Reports 


vision 


1886 


0.70 


. 


0.46 


O.OQ 


1. 13 


: : 3 


0.59 0.85 


: - 


: -- 


e n 


0.73 


0.13 


2 


10 


- - - 


0.54 


1 24 


1888 


0.6S 


0.72 


0.44 


0.14 


2 


38 


2.1S 


0.85 


1 .26 


1889 


-; 


: 75 


0.49 


0-r 3 


a 


70 


- -: 


0.S1 


1.37 


1890 


- 73 


: 75 


0.38 


0.12 


3 


27 


2.95 


0.98 


1-47 


::;: 


- 71 


- 74 


0-31 


0.12 


a 


4.1 


312 


1 .10 


1-57 


: : :: 


O.65 


0.68 


0.30 


0.12 


3 


5S 


3 .17 


1. 14 


1.67 


: : ; : 


O.69 


0.74 


0.27 


0.12 


a 


82 


3-rr 


1.25 


2 .06 




0.66 


0.69 


0.16 


0.12 


3 


82 


- :; 





THE PREVENTION OF ACCIDENTS 1 47 

is again only apparent, depending on the higher propor- 
tion of accidents resulting in claims. 1 

A decrease in the cost of accident insurance is an index 
of a decrease in the accident rate. There has been a marked 
decrease of the cost in many industries. The assessment 
in bridge construction (other than iron) declined from 3.07 
per cent of the wages in 1895 to 2.32 per cent in 1908. The 
rate in candy factories fell in 1908 to slightly over one half 
of the rate in 1893. The cost of accidents in railroad con- 
struction (excluding tunneling) in 1908 was only half the 
rate of 1890. In electrical apparatus (telegraph, telephone, 
etc.) factories the cost has likewise been cut in two. A rate 
of 0.85 in 1893 m the glove factories has been reduced to 
0.16 in 1908. Other reductions in cost are shown in Table 
II. A decline in the rates of assessment in these industries 
is the more noteworthy because of the normal tendency of 
the rates to grow on account of the method of assessing 
simply the cost of current pensions. 2 

1 "The general increase in the total number of accidents as stated in 
official reports, is accounted for, — according to the competent authority 
of the Reichs-Versicherungsamt, — by the following circumstances: 
(1) A better control over the notifying of accidents; (2) The necessity 
of hiring unskilled and untrained labor (especially in the building 
trades) in consequence of the sudden development of industry; (3) 
The increased application of machinery in industry and, still more, in 
agriculture, which, again are [is] in many instances served by inexper- 
ienced hands; (4) The better acquaintance of the working class with 
insurance law, in consequence of which its assistance is being applied 
for more frequently than formerly; (5) The interpretation of the 
meaning of ' Betriebsunfall' (accident arising out of or in the course of 
employment) by the Reichs-Versicherungsamt in the liberal spirit of 
modern legislation; this leads to more frequent declaration, especially 
of minor accidents." Pinkus, Workmen's Insurance in Germany, in 
Yale Review, XIII. 80 (1904-05). 

2 Cf. supra, 56, note. 



I-p 



SOCIAL IX5UEA>"CE 



TABLE II 

DECLINE OF ACCTDENT ASSESSMENTS » GERMAN EMPLOYERS* MUTUAL 
ACCIDENT ASSOCLATION5 



?tr:t-:ire -f --=.-:- -JL 



~-Z-i.-L.V~" 



- -i.r in the 

Vs.T : 



Ratein 



Bridge construction (other than iron) .... 

Brickmaking (by hand) 

Candy factories 

Car; =-:-.*: 

(a) Cabinet making (power 

(b) General contract 

Carriage :'i:::r!e= 

Casting works: 

(a) Iron, without power 

(c) Metal 

Celluloid factories: 

(b) Articles 

Cleaning establishments (chemical 

Clothing factories 

Coking plant 

Construction: 

(a) Railroad, excluding tunneling 

Drayage, riggers and heavy movers 

Electrical: 

(b) Installation of same (machinery 
plant) 

(c) Apparatus (telegraph, telephone 
etc.) factories 

(d) Installation telegraphs, telephones. 
etc 

(e) Lighting and power establishments 

Enameled-ware factories 

Furnaces: 

(c) Crucible 

(d) Puddling 

Furniture factories: 

(a) Wood 

Glove factories 

K ruscirr.ithing 



307 
■ .05 
1.03 

2.14 
3 07 
i-45 

1.84 

1 .00 

i-47 
1. 14 

.21 
3.00 

4.64 

6.15 



2.07 

.88 

2.07 
1. 71 
1.24 

2-39 
1.74 

2.14 



1895 
1902 

1893 

1902 
1895 
1903 

1904 
1902 

1 §93 
1901 
1894 
1905 

1890 
1903 



1902 

1894 

1902 
1902 

1903 

1904 
1894 

1902 



.85 1893 



1 .90 



1892 



2.32 
.70 
■55 

1-93 

2.32 

•84 
1.42 



1 .06 

.68 

•14 
2.42 

2.30 
4-94 



•44 

1-53 
1 .10 

1.05 

1.42 
1.42 

i-93 
.16 



THE PREVENTION OF ACCIDENTS 



149 



TABLE II— Concluded. 



Industry 



Percentage of payroll 



Rate in the 

Year Specified 

(Maximum) 



Rate in 
1908 



Paper factories: 

(a) Envelope 

Quarries: 

(c) Slate 

Railways, electric 

Rolling mills: 

(b) Heavy products 

Rubber and gutta-percha manufacturing 
Safe, etc. factories: 

(a) Iron safes 

(b) Iron furniture 

Sewing-machine factories 

Slaughter houses 

Steamships: 

(b) Ocean 

Street cleaning 

Tinsmithing 

Tobacco factories (smoking tobacco fac 

tories with motor) 

Tool makers 

Tunneling: 

(a) Ordinary 

Warehouse and storage 



•53 


1901 


2.27 
1.78 


1889 
1893 


1.84 
1.47 


1904 
1893 


1.32 
.60 
•52 

1.32 


1903 
1892 
1894 
1893 


2.67 

•77 
1.90 


1899 
1903 
1892 


1-75 
1.76 


1901 
1903 


8-34 
2.81 


1890 
1888 



•44 

1.36 
1.02 

1.42 
1.06 

1.03 
•44 
•35 

1. 18 

2.47 

•54 

136 

1 .04 
1.62 

2.79 

2.52 



From table, Bulletin of the Bureau of Labor, XXI. 778-783 (1910). 



Statistics of the causes of accidents, as shown in 
Table III, throw some light on the question of its pre- 
vention. 



150 



SOCIAL INSURANCE 



TABLE III 

RESPONSIBILITY FOR INDUSTRIAL ACCIDENTS IN GERMANY 



Cause 


Percentage of all Accidents Due to 
Cause Specified in: 




1887 


1897 


1907 


Fault of employer 


20.47 

26.56 

4.61 

340 

44.96 


17.30 

29.74 

4-83 

5-31 

41-55 

1.27 


12 .06 


Fault of injured employee 


41.26 
0.91 
5-94 

3765 
2.18 


Fault of both employer and employee . 
Fault of fellow-employee 


General hazard of industry 


Other causes (chance, etc.) 







1 Rubinow, Social Insurance, 74. 

In interpreting the figures of Table III a most striking 
fact is the decrease in the percentage of accidents due to 
fault of employer from 20.47 m 1887 to 12.06 in 1907. The 
system of compulsory accident insurance, introduced in 
1885, placed all the cost on the industry. Analysis of the 
accidents due to fault of employer gives the distribution 
shown in Table IV. The percentage of the total accidents 
due to absence of safety appliances has shrunk from 11.03 
in 1887 to 4.69 in 1907. The influence of the imposition 



TABLE IV 

ACCIDENTS DUE TO THE EMPLOYER'S FAULT 2 



Accident Due to 


1887 


1897 


1907 


Defective apparatus 


Per cent 

7.28 

II.03 

2.16 


Per cent 

7-15 
7.82 
I.84 


Per cent 
5.40 


Absence of safety appliances 

Absence of proper regulations 


4.69 
I.97 




20.47 


16.81 


12.06 



lb. 75. 



THE PREVENTION OF ACCIDENTS 



151 



of the cost on the employer can be clearly seen in these 
figures. 

A noteworthy decline is shown also in the percentage 
of accidents due to the general hazard of industry. This 
decrease may be due to better regulations and may prob- 
ably also be ascribed in some measure to the employer's 
liability for the cost of accidents. 

The percentage of accidents caused by the fault of the 
injured employee has shown a great increase during the 
period, rising from 26.56 per cent of all accidents to 41.26 
per cent. This increase may be due partly to the increase 
in proportion of cases reported where the workman was 
injured by his own fault. Workmen may not have known 
so generally in 1887 that they would be entitled to compen- 
sation for accidents caused by their own fault as they did 
in 1907. These figures, if they mean that the workman is 
becoming less careful or less disposed to prevent accidents, 
suggest a serious criticism of social insurance. 

TABLE V 

PERCENTAGE OF INDUSTRIAL ACCIDENTS DUE TO CAUSES CLASSIFIED AS 
FAULT OF EMPLOYEE, BY NATURE OF FAULT * 



Accident Due to 



1887 


1897 


17.09 


20.85 


1.82 


1 .92 


5-35 


5-44 


2.05 


1. 19 


•25 


•49 


26.56 


29.89 



1 . Lack of skill, inattention, etc 

2. Failure to use existing protective ap- 

pliances 

3. Actions contrary to existing regula- 

tions 

4. Actions of horseplay, mischief, intoxi 

cation 

5. Unsuitable clothing (aprons, neckties 

etc.) 



28.96 

2.22 

9.48 

0.55 

■05 

41.26 



1 Rubinow, Social Insurance, 76. 



152 SOCIAL INSURANCE 

Accidents caused by the fault of the employee are dis- 
tributed as shown in Table V. The total increase in the 
percentage of accidents due to fault of injured employees 
was about 14.7 in the twenty-year period. The percentage 
of accidents due to lack of skill, inattention, etc., increased 
by nearly 12. The percentage of accidents due to actions 
contrary to existing regulations increased by slightly over 
4, while the percentage for actions resulting from horse- 
play, intoxication, etc., decreased from 2 to 0.5. 

The great increase in the percentage of accidents due to 
inattention, lack of skill, etc., and to some extent to actions 
contrary to existing regulations is to be attributed, as 
Rubinow points out, to the increase of speed and of fatigue 
in modern industry. 1 Part of this increase, however, may 
be due simply to a greater degree of completeness in return- 
ing reports of the minor accidents resulting from inatten- 
tion. Studies of the accident rate by the hour of the day 
and by the day of the week show that the accident fre- 
quency increases in the forenoon, falls off after the noon 
period, and rises again in the late afternoon; and that 
accidents are most frequent on Monday, Friday, and 
Saturday. Fatigue seems to have a considerable effect on 
the accident rate. 

With these two explanations of the increase in the pro- 
portion of accidents in which the employee was at fault — 
i.e. the statistical, that a larger proportion especially of 
minor accidents are now reported where the employee was 
responsible, and the psychological, that it is due largely to 
inattention, lack of skill, etc., caused by increased speed 
and fatigue, — there remains no ground for any fear that 
workmen are becoming criminally careless under the "de- 
moralizing effect" of workmen's insurance. 

The frequency of accident has been materially diminished 
in Germany under workmen's compensation. But in other 
countries under other conditions the accident rate has also 

1 Rubinow, Social Insurance, 77-82. 



THE PREVENTION OF ACCIDENTS 1 53 

declined. Comparable statistics of the trend of the fre- 
quency of accidents are not available. English figures 
showing the decline of the mortality from accident are not 
quite comparable because they include not only those fatal 
accidents arising out of the course of employment but all 
cases of death by accident. The "safety first" movement is 
not necessarily dependent on a peculiar form of accident 
insurance. Safety legislation may effectively reduce the 
possibilities of accident in the absence of workmen's com- 
pensation. Nevertheless, the imposition of the entire bur- 
den of cost upon the employer in such a way that he can 
diminish it by reducing the danger in the establishment 
must add to the efficacy of safety legislation. In efforts to 
reduce industrial accidents forms of organization and 
administration are important. Where responsibility for 
enforcing safety laws is placed in one branch of industry 
with a commission and in another with an industrial board, 
where inspectors of competing insurance companies make 
guesses as to the classification of a given factory in a risk 
group, there is a complete disorganization of the adminis- 
trative machinery for preventing accidents. The reports 
of factory inspectors have nothing to do with the classifica- 
tion of the employer by the insurance company; their 
activities are confined to the enforcement of special factory 
legislation. Conditions of competition among insurance 
companies may lead one to accept a poor risk after another 
has rejected it. The employer does not feel any particular 
interest in lessening the losses of the insurance company and, 
having once paid his premium, is not inclined to lay out 
more money in the interest of mere safety. 

The organization of accident prevention in Germany con- 
centrates responsibility and the cost upon mutual employ- 
ers' associations. Inspection of factories and classification 
in risk groups is made by these mutual corporations. The 
inspection is made with a view to the assessment of cost. 
The associations have power to issue accident regulations, 



154 SOCIAL INSURANCE 

which, when approved by the Reichs-Versicherungsamt, 
become binding upon all employers in the association. 
Accident regulations are framed by persons in the business 
who are looking for a chance to save money by reducing the 
expense of the burden of unnecessary injuries. Installa- 
tion of safety machines and appliances and the planning 
of factories with adequate floor space are made matters of 
pecuniary importance by placing the cost of accidents on 
industry. Unsafe establishments are penalized with a 
heavier rate. Furthermore, the active cooperation of the 
workmen is secured. Representatives of the workers are 
consulted with reference to new regulations, and inspectors 
representing labor help to see that the workmen observe the 
rules. Complete statistics of the causes of injuries are 
obtained and full knowledge upon which to base effective 
preventive regulations is at hand. The entire organization 
is admirably adapted to securing effective safety conditions 
in industry, and an essential feature of it is the imposition 
of the burden of cost upon the industry. 1 

1 Though somewhat aside from the question of an increase of acci- 
dents and more concerned with purely medical matters, the alleged 
prevalence of "accident neurosis" and the increase in length of time of 
recovery in certain cases of injury may be briefly discussed. Professor 
Bernhard in his Unerwilnschte Folgen der deutschen Sozialpolitik tried 
to show a serious moral decay among the working class in increase of 
simulation, pension hysteria, in the organized method of pressing claims 
for pensions through certification of injuries by "workmen's" physi- 
cians, and in systematic appeal of cases through their own attorneys, 
etc. Bernhard's conclusions as to these evils were sweeping and were 
based on medical opinions rather than on statistical evidence. Medical 
opinion of the prevalence of accident neurosis is divided. The only 
valuable statistical evidence on the question was discarded. This 
evidence shows that the occurrence of such neurosis is quite negligible. 

Evidence as to an increase in the average length of recovery from 
certain injuries seems to be better substantiated. Fassbender and 
others show that the longer period of convalescence is due to "more 
careful observation of cases and is really desirable. Laborers are no 
longer allowed to return to work before complete recovery." (Gan- 
nett, Bernhard's Unerwilnschte Folgen der deutschen Sozialpolitik and its 



THE PREVENTION OF ACCIDENTS 1 55 

Critics, in Quarterly Journal of Economics, XXVIII. 561-569. 1914). 
As for efforts made by workmen to secure compensation if they are 
entitled to it no complaint can be made. All that is required is a care- 
ful sifting of the unreasonable from the reasonable claims. The statis- 
tics of the cases of appeals show that a large proportion of them are 
refused. Where the amount of compensation for injury is fixed by the 
head of the employer's mutual accident association or his representative, 
some form of appeal must be provided for the workman. The figures 
showing the reduction of the number of serious accidents and especially 
the reduction of cost in many industries point to the really significant 
facts. 

Cf. Gannett, 561-578, and the references there cited, especially 
Hitze (Fassbender), Zur Wiirdigung der deutschen Arbeiter-Sozialpolitik. 
Kritik der Bernhardschen Schrift: Unerwiinschte Folgen der deutschen 
Sozialpolitik. 



CHAPTER XI 

CONCLUSIONS 

The consideration of the question which was raised in an 
early chapter and deferred until the economic incidence of 
the burden and the effects of the burden of cost upon in- 
dustry and wages had been studied may now be resumed. 
Do the advantages of social insurance outweigh the dis- 
advantages? Is there such a balance in favor of a policy 
of compulsory insurance as to justify the imposition of the 
necessary burden of cost upon industry? 

The positive advantages are clear and important. Com- 
pensation for the injuries and deaths caused by accident 
removes from the shoulders of the injured man and his 
family the severe economic losses for which in the majority 
of cases they are not responsible. Workmen's compensa- 
tion eliminates the wastes of the present system of em- 
ployers' liability and gives adequate compensation at a 
reasonable cost. Compulsory insurance against sickness 
protects the workman against the disastrous consequences 
of a temporary or complete stoppage of income. Provision 
for old age makes the lot of the aged workman free from 
anxiety and from the shame of the poorhouse. Conditions 
of life are made more secure and the individual is protected 
against the principal contingencies which are likely to 
precipitate those who are affected below the line of decent 
or adequate subsistence. Insurance reduces the uneven- 
nesses and irregularities of the income of the individual. 1 

Furthermore, fruitful causes of discontent among the 
working class are removed. Under present methods of 
settling compensation for accidental injuries, friction 
between employer and employee is prone to arise. The 

1 Cf. Pigou, Wealth and Welfare, 408-420. 

156 



CONCLUSIONS 157 

amount of compensation is a question not of the equities 
of the case but of technical legal liability. To press a 
claim means too often the loss of position for the workman. 
The policy of the insurance company to keep the benefits 
at the lowest legal minimum is substituted for the more 
reasonable policy which an individual employer might 
prefer. 

The advantages of each branch of insurance must be 
compared with the cost which will thereby be placed upon 
industry. The analysis of the economic incidence of the 
burden of social insurance in general shows that there is 
little danger of a serious effect upon industry. The cost 
of insurance is so small a proportion of the total cost 
of production that disastrous consequences to industry are 
not to be feared. In some industries the cost may be shifted 
to the consumer. In others the added cost will be met by 
improvements in processes and kindred economies. Diffi- 
culties would, at the worst, be limited to a few industries 
and a few establishments. The economic burden of in- 
surance and the pains of the shifting process do not represent 
a very great social cost. 

The fear that thrift among the working classes will be 
destroyed is in large measure groundless; compulsory in- 
surance will rather encourage and stimulate thrift. The 
frequency of serious accidents in Germany has declined since 
the introduction of compulsory insurance. The imposition 
of the cost of accidents upon the employer encourages the 
prevention of accidents. Remote social effects give no 
cause for apprehension; on the contrary the balance of 
advantage is in favor of the policy of compulsory insurance. 

This discussion of the economic aspects of social insurance 
has necessarily been of a general nature. There are a 
multitude of questions of detail which must be answered, 
many specific problems must be solved, before a given 
measure can be approved. For workmen's compensation 
legislation in this country, a special difficulty which must 



I58 SOCIAL INSURANCE 

sometimes be removed is that of constitutionality. Some 
states have tried to avoid a conflict with the constitution 
by making it optional with the employer to elect workmen's 
compensation, making it at the same time to his advantage 
to do so by removing the usual common law defences against 
employers' liability. 

Then there is the question of the organization of insurance : 
Shall employers be required to insure in a state fund, or be 
forced to form employers' associations, or permitted to 
insure in private mutual or stock companies? How are 
the rates to be controlled? Shall awards be made by an 
administrative commission or by local boards of arbitra- 
tion? How is general interference with the administra- 
tion of the law by the courts to be prevented? 

These are a few of the many questions of detail that arise 
in connection with workmen's compensation legislation. 
Compulsory insurance against sickness or old age or inva- 
lidity has not as yet been seriously pressed in this country. 
Proposals for old-age-pension legislation have indeed been 
made, but discussion has not yet reached the stage where 
it is a question of how the objects sought may best be at- 
tained. 

Questions of administration or organization, important 
as they may be, are not usually fundamental. A good 
organ of administration may, indeed, make the difference 
between relative success and failure. Cheapness of in- 
surance together with the effective prevention of accidents 
may have considerable effect on the burden which accident 
compensation places upon industry; these may be secured 
by efficient administration. But the fundamental question 
of the social advantage of compulsory insurance legislation 
as compared with the weight of the cost can be answered 
without solving all the problems of detail. 

The whole movement is part of a tendency to develop 
a new standard of human happiness. The increase of 
wealth in a nation is not the supreme end of its existence. 



CONCLUSIONS I59 

The past century has seen a vast increase of wealth, and 
probably the portion of each is on the average larger. The 
poorest now have advantages and opportunities in educa- 
tion, etc., that the workmen of past generations did not 
know. But with the increase of wealth the center of atten- 
tion is passing away from the questions of greater produc- 
tion to the problems of a more equal and equitable dis- 
tribution. The elimination of poverty and the alleviation 
of the hardships of those who are among the less fortunately 
placed are the questions of the coming age. The provision 
of compulsory insurance against sickness, accident, and 
superannuation, is a definite step toward the realization of 
these ideals. 



LIST OF AUTHORITIES CITED 

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Bericht der VIII. Kommission vom 26 Juni 1879. Stenographische 
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Branchart, Zur Frage der Belastung der deutschen Industrie durch die 
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Brown, H. D. Civil Service Retirement, Great Britain and New 
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Savings and Annuity Plan proposed for Retirement of Super- 
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Bulletin of the Bureau of Labor (later, Bureau of Labor Statis- 
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Commissioners of His Majesty's Customs and Excise. Report of 
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Conrad, J. and others. Handworterbuch der Staatswissenschaften. 
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Dawson, M. M. Cost of Employers' Liability and Workmen's Com- 
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Dawson, W. H. Social Insurance in Germany, 1883-1911. Its His- 
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Denkschrift der Hansa Bunds, IX. Die offentlich-rechtlichen Belas- 
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160 



AUTHORITIES CITED l6l 

Freund, R. Armenpflege und Arbeiterversicherung. Prtifung der 
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Aufgaben der Armengesetzgebung und Armenpflege einwirkt. 
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Gannett, L. S. Bernhard's Unerwunschte Folgen der deutschen 
Sozialpolitik and its Critics. Quarterly Journal of Economics, 

XXVIII. 561-578- 

General Report on the Wages of the Manual Labour Classes in 
the United Kingdom; with Tables of the Average Rates of 
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Greissl. Wirtschaftliche Untersuchung iiber die Belastung der deut- 
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Volkswirtschaft im Deutschen Reich, XXIII. 855-912. 

Hamilton, J. H. Savings Banks and Savings Institutions. New York, 
1902. 

Herkner, H. Die Belastung der Industrie im In-und Ausland. Preus- 
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Die offentlichen Lasten der deutschen Industrie. Preussische 

Jahrbiicher, CXLII. 539-543. 

Die sozialen Lasten der deutschen Industrie in neuer Beleuchtung. 

Preussische Jahrbiicher, CXLIV. 107-112. 

Hitze, F. Zur W T iirdigung der deutschen Arbeiter-Sozialpolitik. 
Kritik der Bernhardschen Schrift: Unerwunschte Folgen der 
deutschen Sozialpolitik. Munchen-Gladbach, 1913. 

Johnson, A. S. Influences affecting the Development of Thrift. 
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Jungst, E. Die Leistungen des Ruhrbergbaues auf dem Gebiete der 
sozialen Zwangsversicherung. Gliickauf, XLIX. 249-256; 292- 
297; 327-337- 

Kaskel, W. and Sitzler, F. Grundriss des sozialen Versicherungs- 
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sicherungsordnung und des Versicherungsgesetzes fur Anges- 
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Keiner, O. Die Entwickelung der deutschen Invaliden-Versicherung. 
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Lass, L. and Zahn, F. Einrichtung und Wirkung der deutschen 
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zu Paris, 1900. Im Auftrage des Reichs-Versicherungsamts. 
Berlin, 1900. 



1 62 SOCIAL INSURANCE 

Lenz, F. Die soziale Geschichte der Schultheiss Brauerei. Archiv fiir 

Sozialwissenschaft und Sozialpolitik, XXXVII. 175-214. 
Sozialpolitik und Unternehmertum. Zugleich ein Beitrag zum 

Methodenstreit in den Privatwirtschaftslelire. Preussische 

Jahrbiicher, CLII. 313-322. 
Zur Frage der sozialen Belastung unserer Industrie. Jahrbuch fiir 

Gesetzgebung, Verwaltung und Yolkwirtschaft im Deutschen 

Reich, XXXV. 11 29-1 142. 
Liability and Compensation Insurance. A series of lectures 

delivered before the Insurance Institute of Hartford. Hartford, 

I9I3- 

Manes, A. Sozialversicherung (Reichsversicherung, Angestellten- 
versicherung, Arbeitslosenversicherung). 3d ed., Berlin and 
Leipsic, 19 12. 

Massachusetts, Bank Commissioner, Annual Report, 1913, Part 
I. Boston, 1914. 

Massachusetts, Commission on Old Age Pensions, Annuities, 
and Insurance. Report. House No. 1400. Boston, 1910. 

Massachusetts, Bureau of Statistics of Labor, Twelfth Annual 
Report, Part III. Uniform Hours of Labor. Boston, 1881. 

Mill, J. S. Principles of Political Economy- with some of their Ap- 
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New York, Bureau of Labor. Seventeenth Annual Report, Part II. 
Industrial Accidents and Employers' Responsibility for Their 
Compensaticn. Albany, 1900. 

New York, Commission on Employers' Liability. First Report. 
Albany, 1910. 

New Zealand. Official Year Book. Wellington, 1912. 

Orenstein, M. S. Report on a Hundred Accidents in the Paper 
Box Industry of Greater New York. Fourth Report of the 
New York State Factory Investigating Commission, II. Ap- 
pendix IV. 

Pigou, A. C. Wealth and Welfare. London, 1912. 

Pinkus, N. Workmen's Insurance in Germany. Yale Review, XII. 
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Potthof, H. Die Kosten der sozialen Yersicherung und ihre Ueber- 
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Kernfrage sozialer Yersicherung. Ehrenzweig's Assekuranz- 
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Wer tragt die Kosten der sozialen Yersicherung? Schriften des 

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Januar 1913. Die Sozialversicherung in Europa nach dem 

gegenwartigen Stande der Gesetzgebung in den verschiedenen 

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Roscher, W. System der Volkswirtschaft. Die Grundlagen der 

Nationalokonomie. Stuttgart and Tubingen, 1854. 
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Leipsic, 1895. 
Seager, H. R. Social Insurance, a Program of Social Reform. New 

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Das Unternehmertum und die offentlichen Zustande in Deutsch- 

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Erhohung der Gestehungskosten der deutschen Industrie durch die 

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Nineteenth Annual Report, 1904. Wages and Hours of Labor. 

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Twenty-third Annual Report, 1908. Workmen's Insurance and 

Benefit Funds in the United States. Washington, 1909. 



I64 SOCIAL INSURANCE 

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Rundschau, Col. 449-50; 676; 1303-04. 



INDEX 



Accident insurance, cost of ad- 
ministration, 51; division of 
cost, 12, 5, 51; effect of wages, 
114-115, 117-118, 123-124, 56; 
extent of, 15-16, 12; Germany, 
5, 12, 75-76; United States, 
27, 28; when adopted, 13. See 
Employers' liability, Workmen's 
compensation. 

Accident neurosis, alleged, 154- 

Accident rate, and social insurance, 
37; decrease of, 42-43, 144-149; 
in different industries, 39, 
7 0_ 73I an d workmen's com- 
pensation, 142-155. See Work- 
men's compensation. 

Accidents and workmen's com- 
pensation, 157. 

Administration, cost of, work- 
men's compensation and em- 
ployers' liability, 51; methods 
of, and accidents, 158. 

Administrative precedents, Ger- 
many, 8. 

Advantages of social insurance, 1, 
22-23, 31, 156-157. 

Apprentices, protection for, Ger- 
many, 6, 8. 

Attitude of workmen to liability of 
employers, 39. 

Australia, old-age pensions, 18; 
pensions and thrift, 139. 

Belgium, statistics of insurance, 

16; subsidized old-age insurance, 

135-136, 33- 
Benefits, of employers' liability 

compared to premiums, 51-54; 

mining industry law, 1854, 9; 

social insurance, Germany, 75- 

77. 
Bernhard's Uneriviinschte Folgen, 

154-155- 
Brakemen, wages of, 66-68. 
Brewery, Schultheiss, Burden of 

insurance and taxes, 94-96. 



Burden of social insurance, 37; 
collection proceedings, 97-98; 
conclusion, 99; defined, 100; dis- 
cussion, historical, in Germany, 
86-99; equalized by taxes and 
high wages abroad, 90; ex- 
pansion of export trade, 86, 99, 
88; foreign trade, 87, 89; im- 
provement of technique, 88; 
increase of wages, 86; in per- 
centage of gross income, 91; 
insurance and taxes, 88-89, 9 2 » 
94-96; relative unimportance of, 
86, 88; shift to workers, 88. 

Capital, cost of social insurance 
in per cent of capital, 82-83; 
effect of insurance on, 107-109; 
on fluid capital, 109 ; on invested 
capital, 107-108; effect on 
accumulation, 110-112. 

Civil War pensions, U. S., 20. 

Coal mining company, burden of 
insurance in, 91. 

Code of 191 1, Germany, insur- 
ance, 12. 

Collection proceedings, Germany, 
97-98. 

Common law liability, U. S., 40; 
rules of interpretation, 41, 142; 
in Germany, 4. 

Communal optional compulsion, 
Germany, 8, 10. 

Comparative mortality from ac- 
cident, 63, 71-73; general 
laborers, 63; railway men, 63. 

Comparative mortality and wages, 

70-73- 

Compulsion, principle of, II, 
31-36; local communal, Ger- 
many, 8, 10; opposition to, 35; 
survival of the fittest and, 35. 

Compulsory insurance, against 
old age and invalidity, 14; 
against sickness, extent, 13; 
Germany, mining industry, 6; 
thrift and, 136-138. See Work. 



165 



1 66 



INDEX 



men's compensation, Employers' 
liability, Sickness insurance, 
Old-age pensions. 

Conditions in Europe and Amer- 
ica. 21. 

Constitutionality of workmen's 
: mpensation laws, 19-20. 15S. 

Contributor}- negligence, 41, 142. 

C : si of accident compensation, 
decrease in, 147—149; of accident 
liability, United States, $8; 
administration, employers' lia- 
bility insurance. 51; German 
accident insurance, 51: em- 
ployers' liability, burden on 
ini ured workmen , 5 : - g _ . 
Social insurance in Germany, 
77-54: in per cent of wages, 
7&~79; in per cent of capital, 
82-83 ; m P er cent of dividends, 
83, 89; in per cent of value of 
output, 83-85, 86 ; per employee 
per year, 79--S2. Workmen's 
compensation in United States, 
44-5 1 : comparative rates, spec- 
ified industries, 45-51; com- 
parative rates, state and private 
insurance. _:--: in Germany, 
44, 45--51; selected dangerous 
industries, 44. See Division of 



Dangerous industries, rates for 
employers' liability and work- 
men's compensation, 44-51. 
See Risk, Wages. 

Decrease in accident rate, 42—43 
in cost of compensation. 
Germany, 147-149. 

Deductions from wages, opposi- 
tion to, France. 55. 131; Law- 
rence strike. 121. See Wages. 

Demand for labor, effect of in- 
surance on, in; accident com- 
pensation, differential effect, 
125: localized , 124; general 
discussion, 124-126: new de- 
mand from pensioned clissrs. 
126. 

Denmark, old-age pensions. 14; 
old-age pensions and thrift 138; 
voluntary sickness and insur- 
ance, 14, 16. 



C idends, affected by social 
insurance, 83, 89, 91, 92, 94~99- 

Division of cost between em- 
ployer, employee, and state, 3, 
: r accident insurance, 36; 
sickness insurance, 36, 8; old- 
age insurance, 36-37; no 
change in Germany, 138; 
Germany, mining industry-, 8; 
:'-z-}.Zz insumme. ~ : z: siz^ness 
insurance, 8, 36; social insur- 
ance, 12, 77. 

Employers' liability 7 and accident 
rate, 142 : attitude of workers to. 
40: benefits compared to pre- 
miums r :~ : -: common law lia- 
bility U. S., 40: common law 
rules modified, 40-42; cost of, 
burden on injured workmen, 
51-54: Germany, 4: mining 
industry-, 7: insurance, 55; for 
seamen, Germany, 7. See 
Accident rate, Workmen's com- 
pensation. 

Enterprise, conditions in state 
attracting enterprisers, 1 09- no; 
effect of insurance on, 109. 

Zsiblishment funds, death bene- 
fits. U. S., 27; sickness insur- 
ance. U. 5.. 29. 

Expansion of export trade, Ger- 
many, 86, 99. 

Export trade, expansion, Ger- 
many, 86, 89. 

Fault of employer, as cause of 

accident, 150-151: of employee, 

_ I5I-I52- 

Fellow servant rule, 41, 142. 
Prance, accident insurance. :_". 

16; deductions from wages, 35, 

121: old-age pensions, 14-16; 

school, savings 32; sickness 

insurance, 14. 16: subsidized 

old-age insurance, 1 3 ~ 
Fraternal insurance, 26-30: death 

benefits. 27, 
Friendly aid societies, Germany, 9. 

See Mutual aid societies. 
Funds, establishment, 27. 29; 

railroad, 29-30: trade-union, 

28-29. 



INDEX 



I6 7 



Funeral insurance, 25-27; bene- 
fits, 76. 

Germany, accident insurance, 5, 

12, 75-76, 51; administrative 
precedents, 8 ; benefits and scope 
of social insurance, 74-77; bur- 
den of insurance, discussion, 
86-99; code of 191 1, 12; com- 
pulsion, local communal, 8; 
compulsory insurance against 
sickness, 13; against old-age 
and invalidity, 14; cost of ad- 
ministration of accident insur- 
ance, 51; of social insurance, 
77-84; in per cent of wages, 
per employee, per year, 
in per cent of capital, of 
dividends, output, 78-84; of 
workmen's compensation, 44, 
45-51; division of cost, 8, 12, 
77; no change in, 138; em- 
ployers' liability, 4; expansion 
of export trade, 86, 99; extent 
of insurance in, 1912, 15; 
friendly societies, 9; mining 
industry, 8; old-age insurance, 
19; railroads, liability, 4; sea- 
men, liability for, 7; servants, 
liability for, 7; sickness in- 
surance, 11, 74-75, 77, 5-10, 

13, 15; social insurance, 4-12, 
74-99, 15; voluntary provision 
for old age, 10. 

Guilds, insurance in, 6. 

Hazard of industry, general, 150; 

attitude toward, 39-40. 
Health insurance. See Sickness 

insurance. 

Incidence of cost of accidents, 55, 

55-73- 
Increase of wages, Germany, 86, 

88, 93- 
Industrial establishment funds, 

U. S., 26-27, 2 9- 
Industrial insurance, lapses, 23, 

26; loading, 24; thrift and, 137; 

in United States, 25-6. 
Industrial revolution and social 

insurance, 1, 21. 
Injuries, compensation for. See 

Accident insurance, Workmen's 



compensation, Employers' lia- 
bility. 

Insurance, see Accident insurance, 
Benefits, Burden, Capital, 
Compulsory insurance, Cost, 
Division of cost, Employers' 
liability, Germany, Industrial 
insurance, Old-age insurance, 
Old-age pensions, Sickness in- 
surance, Social insurance, Work- 
men's compensation, etc. 

Invalidity insurance in Germany, 
76-77. 

Ireland, old-age pensions, 18. 

Knappschaftskassen, Insurance 
in, Germany, 6, 10. 

Labor, effect of insurance on, III, 
123-126, 114-117. See De- 
mand for labor, Supply of labor, 
Psychology, Wages, Laborers; 
General, Mortality from acci- 
dent, 63; Lapses, industrial 
policies, U. S., 23, 26. 

Lawrence strike, 121. 

Legal theory of risk and wages, 57 ; 
of accident prevention, 142. 

Liability of employers. See Em- 
ployers' liability, Workmen's 
compensation, Cost, etc. 

Loading, industrial insurance, 24. 

Massachusetts, Savings bank in- 
surance, 30. 

Massachusetts Commission on 
Old-Age Pensions, arguments 
of, 1 18-120. 

Miners' associations, Germany, 
10. 

Mining industry, Germany, in- 
surance in, 6-11; benefits, 9; 
division of cost, 8; employers' 
liability, 7; law of 1854, 8. 

Mining company, coal, Germany, 
91. 

Mortality from accident, com- 
parative, 63, 71-73. 

Mutual aid societies, Germany, 9. 

Mutual associations, sickness in- 
surance, 29. 

Need of social insurance, relative, 
Europe and America, 22. 



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INDEX 



169 



Savings and insurance. See 
Thrift. Savings in schools, 32. 

Savings bank insurance, Massa- 
chusetts, 30. 

School savings, 32. 

Seafaring, accident rate, 39. 

Seamen, employers' liability for, 
Germany, 7. 

Serfdom, abolition of, Germany, 

Shifting process in industry, 100- 
106; reductions in profits, 104- 
105; reductions in wages, 105; 
savings in expenses, 102-104; 
shifting of burden, 101-102. 

Sickness insurance, compulsory, 
13; division of cost, Germany, 
8, 12; employers' liability for 
seamen, Germany, 7; establish- 
ment funds, 29; extent, 15-16; 
Germany, 5-1 1, 13-14. 75; 
mutual associations, 29 ; share of 
accident cost borne by German 
sickness insurance funds, 8, 51; 
subsidized, 14, 16; United States, 
20, 28-29. See Invalidity in- 
surance, Old-age pensions, etc. 

Skilled labor, wages and risk, 64- 
66, 69; wages and old-age pen- 
sions, 1 19-122. 

Social insurance, accident rate 
and, 37, 129; advantages of, 1, 
22-23, 31, 156-157; burden, 
37, 86-99, IO °; definition, 2-3; 
effect of on thrift, 128-141. In 
Germany, 74-99; accident in- 
surance, 75-76; benefits paid, 
75; contributions of employers, 
employees and state, 77 ; cost in 
per cent of wage, 78-79, 86; 
cost per employee per year, 
79-82 ; cost in per cent of capital, 
82-83; cost in per cent of 
dividends, 83-89; cost in per 
cent of value of output, 83-85, 
86; division of cost, 77; in- 
validity insurance, 76-77; popu- 
lation insured, 74; sickness 
insurance, 75. Need of, rela- 
tive, Europe and America, 22. 
See Accident insurance, Sick- 
ness insurance, Old-age pen- 
sions, Cost, etc. 



Standards of living, and thrift, 
131-133; and wages, 58, 120- 
122. 

State insurance rates, 48-49. 

State subsidy, Germany, 77-78. 

Statistics of accidents, analysis, 
144-152 ; of insurance, Germany, 
about 1870, 10; of insurance, 
European countries, 1912, 16; 
of insurance, United States, 
25-30; of wages and risk, 63-73; 
pay in skilled and unskilled 
trades, 63-64; relative pay of 
persons killed in accidents, 64; 

' paper box industry, by occupa- 
tion, 65; change of accident rate 
in railroading, 66-68; correla- 
tion of wages and risk, 68-69; 
relative unimportance of risk, 
70; of old-age pensions, 15-19, 
20. 

Strike, Lawrence, 121. 

Subsidies, old-age insurance, 14; 
France, 135; Belgium, 33, 135- 
136. 

Superannuation. See Old-age in- 
surance, Old-age pensions. 

Supply of labor, accident com- 
pensation and, 114-115; move- 
ment from less to more danger- 
ous trades, 11 4-1 15; migration 
to compensation state, 115; 
old-age pensions and, 115-116; 
partial system, 11 5-1 16; govern- 
ment civil pensions, 115; pen- 
sions for professors, Columbia, 
116; immigration, 116-117; a ge 
requirement, 117. 

Survival of the fittest and social 
insurance, 35. 

Sweden, old-age insurance and 
thrift, 137; old-age insurance, 
14; sickness insurance, 14. 

Taxes compared to burden of 
social insurance, 88-89, 92, 
94-96; burden equalized by 
taxes abroad, 90. 

Technique, improvement in Ger- 
many, 88, 87, 99; as reduction 
in cost, 102-104. 

Thrift, 128-141, 157, 37; among 
immigrants, 131; among middle 



170 



INDEX 



class, 132; Australia, old-age 
pensions and, 139; Belgium, 
subsidized insurance and, 135- 
136; change in contributions of 
workmen and, 138; compulsory 
insurance and, 136-138 ; Sweden, 
137; industrial insurance, 137; 
change in contributions of work- 
men, 138; definition, 131; Den- 
mark, old-age pensions and, 
138; distribution of cost, 128- 
137; education and, 32; exemp- 
tions of savings in pension 
laws, 139-140; France, sub- 
sidized old-age insurance, 135; 
industrial insurance and, 137; 
inherited trait, 32; measure- 
ment of pension to need and, 
138 ; middle class virtue, 132; 
motives to, 132, 140; old-age 
and, 130, 133; old-age pensions 
and, 138-140, 33; Denmark, 
138; Australia, 139; exemptions 
of savings, 139-140; measure- 
ment of pension to need, 138; 
school savings, 32; social in- 
fluences affecting, 32; standard 
of living and, 131; subsidized 
insurance and, 134-136; Bel- 
gium, 135-136; France, 135; 
survival of fittest and, 34; 
Sweden, old-age insurance and, 
137; varies with conditions and 
time of life, 133. 

Trade, expansion, Germany, 86, 
87, 89, 99. 

Trade union insurance, 25-27; 
death benefits, 25-27. 

United States, accident insurance, 
27-28; common law liability, 
40; employers' liability, cost, 
38-51; industrial insurance, 23, 
25-26; old-age insurance, 28- 
30; sickness insurance, 20, 
28-29; social insurance, 19-20, 
21-23; trade union insur- 
ance, 25-27; war pensions, 
20; workmen's compensation, 
19-20; wage-workers, 22; con- 
ditions in, 21-22. See Accident 
insurance, Cost, Sickness insur- 
ance, Old-age pensions, Work- 
men's compensation, etc. 



Unskilled workmen, wages and 
risk, 63-64; wages and old-age 
pensions, 122-123. 

Value of product, cost of insurance 
in per cent of, 83-85, 86. 

Voluntary insurance, in guilds, 6; 
Denmark, 14, 16; Germany, for 
old age, 10; subsidized, 14, 33, 
I 35 _ i36; in United States, 
25-30. 

Wage-earners in the United States, 
22 ; in European countries, 12. 

Wages, accident mortality and, 
1 1 4-1 15; adjustment to risk, 
56-73; avoidance of trade, and, 
59-63 ; comparative mortality 
and, 70-73: cost of social 
insurance, Germany, in per 
cent of, 78-79 ; deductions from 
wages, opposition to, 35; effect 
of insurance on, 126-127, IT 3 - 
127; demand for labor, 123-127; 
depends on weight of burden, 
126-127; opposing views, 113- 
114; psychological influences, 
1 17-123; supply of labor, 114- 
117; accident compensation, 
114-115; old-age pensions, 115- 
117; high wages abroad offset 
burden of insurance, Germany, 
90; increase of wages in Ger- 
many, 86, 88, 93; mortality, 
comparative, and, 70-73; old- 
age pensions and, 1 15-122; 
paper box industry, risk and, 
65 ; per cent of, burden in, Ger- 
many, 78-79. 

Wages, risk and, 56-73: avoidence 
of trade, 59-63; correlation of 
risk and wages, 68-69 : insurance 
a part of standard, 58-59; 
theories of, 58; unimportance 
of risk as factor in wage, 70; 
wages of persons killed in 
accidents, 64; standard of living, 
58-59, 1 17-123. 

\\ ar veterans' pensions, U. S., 20. 

Welfare of workers and social 
insurance, 93, 97; Germany. 

Workers, attitude of to employers' 
liability, 40; burden of em- 



INDEX 



171 



ployers' liability on, 51-54; 
welfare of in Germany, 93, 97. 
Workmen's compensation, admin- 
istration of, 154; cost of, 51; 
accident rate and, 142-155; 
accident neurosis, alleged prev- 
alence, 154-155; cause of acci- 
dent, 150-152; fault of employer, 
150-151; fault of employee, 
152; cost placed on employer, 
143; decrease in cost Germany, 
147-149; comparative benefits 
for total disability, 50; cost of 



administration, 51; disability, 
total, comparative benefits, 50; 
effect of administration of de- 
crease of accident rate, 153- 
154; elective, U. S., 158; fatal 
accident rate, 144-145; partial 
disability, temporary, 145-146; 
permanent disability, partial, 
144-146; total, 144-145; sta- 
tistics, of accidents, reliability, 
144; United States, 19-20; 
Germany, 144-146. 



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